Incoming Gov. Mike Pence wants Indiana lawmakers to phase in a 10 percent cut in the state’s income tax over the next two years.
He’s probably not going to get exactly what he wants.
The Indiana General Assembly kicked-off its four-month, budget-writing legislative session Monday, and as the session opens, the biggest political question is whether Pence will achieve one of his top campaign priorities.
Upon first glance, it would seem the answer should be yes.
He’s a Republican, and his party just captured supermajorities in both the House and the Senate, giving them enough seats to pass their agendas whether or not Democrats even show up.
Also, Indiana is expecting to see its tax collections grow by about $1.2 billion over the next two years — enough to cover the $750 million or so price tag of Pence’s tax cut and still increase spending in some areas.
So why might lawmakers not give Pence the major political victory that he wants to kick off his term?
That’s a complicated question with a number of answers. Here are some of them:
Now that President Barack Obama’s health care law is on the books to stay, states have to cope with some additional costs — and the notion that by declining to set up its own health insurance exchange, Indiana can do much to dodge those costs is little more than wishful thinking.
Whether states expand Medicaid or not, individuals who qualify for the program under current law but aren’t signed up for it will enroll starting in 2014 because of a "woodwork effect" forced by the individual mandate, according to Milliman Inc., the state’s health and human services actuary.
Indiana might also have to increase the amount it pays health care providers to treat Medicaid recipients, because of the influx of new customers, according to Milliman.
The Medicaid expansion that Obama’s law envisioned, which Republican lawmakers might or might not opt to block, actually wouldn’t cost much when compared to the "woodwork effect" and changes to reimbursement rates. So, again, the idea that Indiana could dodge higher costs by declining to participate is just wishful thinking.
Republicans saw State Superintendent of Public Instruction Tony Bennett defeated in November because of backlash to an education reform agenda that they’d passed for him.
Because of the recession, they’ve been denying schools much in the way of funding increases for four straight years, and they know that loosening up the purse strings a bit might help ease tensions with teachers who don’t earn much in the first place and have been burdened with a number of new obligations in recent years.
House Speaker Brian Bosma, R-Indianapolis, has said he’d like to see teachers get pay raises. That means the state would have to spend more of its budget on education. Since K-12 education already accounts for about 55 percent of all state spending, that’s a key area to watch.
Southwestern Indiana’s delegation knows the state needs money to finish Interstate 69 without tolls, so those lawmakers will take transportation funding issues seriously.
But that’s just one example — every area has something like a public university or a major roadway in need of improvements, and lawmakers from those areas have things they want more than a 10 percent income tax cut. It all takes money.
Outgoing Gov. Mitch Daniels has enjoyed sky-high approval ratings, and with that comes the political capital to force the Legislature to meet his will.
But a fact of life is lawmakers outlast governors.
Republicans in the Legislature are, to some extent, tired of being the second-most important branch of government in Indiana. They agreed to put a number of goals on the back burner through the recession, but that won’t last forever. As a six-term congressman, Pence will understand this better than most.
Pence is calling for the state’s income tax to be stepped down from 3.4 percent to 3.06 percent, and he wants it done over two years. What’s more likely is that for this budget session, lawmakers will give him a smaller income tax cut, and they’ll start it later.
It won’t be a terrible political blow for the new governor. He can rightly note Obama’s health care law will claim a chunk of the state’s new tax revenue, and he can point out that the latest revenue forecast projected growth in tax revenue that is slightly below what his campaign had expected. Still, it won’t be what he’d hoped for during the campaign.
How this issue plays out will be fascinating to watch because it will tell Hoosiers a great deal about the state’s new political dynamics in a post-Daniels era.
— Eric Bradner is the Statehouse reporter for the Evansville Courier & Press.