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March 14, 2013

Taking a more prudent path

(Continued)

Veteran lawmakers know firsthand the feast-or-famine cycle that state government has long operated under. For instance, during Gov. Frank O’Bannon’s first term in the late 1990s the state built a record surplus of $2 billion. O’Bannon, a Democrat, promptly pushed $1.5 billion in tax cuts through the General Assembly. That move became a major theme in his 2000 re-election campaign.

But within a couple of years, not only was the surplus gone, but the state found itself saddled with a structural deficit of more than $800 million. Legislators, rather than dealing with the problems directly, resorted to raiding pension funds and delaying payments to schools and local governments in order to pass a two-year budget that was balanced in name only.

Indiana would be wise not to repeat that bit of history of a decade or so ago.

But what of Pence’s argument that the tax cut would stimulate the state economy by making Indiana a more attractive location to do business?

Recent history is again a good guide. Mitch Daniels entered office as governor in 2005 declaring that he wanted to build a “better sand box” for economic development in the state. He streamlined the regulatory process, launched a massive road and bridge building campaign in part to make it easier to get goods to market, and even pushed adoption of daylight-saving time as a means to help a growing logistics sector. Above all of that, though, was the drive to create a tax environment attractive to new businesses. Corporate tax rates were cut. The inventory tax was abolished. And a constitutional cap on property taxes promised more predictable expenses for business managers.

Those moves have earned Indiana high ratings relative to other states in terms of the business climate. What holds back faster economic growth now is less about taxes than the lack of a well-educated workforce and higher than average business costs associated with Hoosiers’ poor health.

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