Scott Tibbs
blog post
January 21st, 2004

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Indiana does not need a tax increase.

To the surprise of many, newly elected Republican Governor Mitch Daniels proposed a tax increase to help deal with Indiana's fiscal problems. The Governor proposed a 1% surtax on Hoosiers making more than $100,000 a year. Many Republicans in the Legislature consider that a graduated tax, even if it is temporary, and are philosophically opposed to it.

House Ways and Means Committee chairman Jeff Espich opposes a tax increase, meaning it is probably (hopefully) dead. A tax increase would be a little bit easier to take if the budget did not include $1 billion in spending over the next two years.

I'm not sure where Daniels is coming from here. He was the Budget Director for George W. Bush, who implemented significant tax cuts during his first term and may well do so in his second. Bush, and many other Republicans, support tax cuts on the theory that allowing people to keep more of what they earn actually increases revenue because it stimulates the economy and creates more wealth than can then be taxed. We saw that strategy work in the 1980's when tax revenue increased dramatically after President Ronald Reagan cut taxes. (Unfortunately, spending increased more than revenue did.)

A tax increase certainly is not a political winner in a conservative state like Indiana. With legislative elections every two years, it will be hard to sell the House or the Senate on a potential tax increase, even a temporary one.

Indiana has been dealing with a sluggish economy for years. Now is not the time to start taking more wealth out of the economy and putting it in government's hands. Instead, the Governor and the Legislature should look at ways to cut taxes, which would spur economic growth and cut the deficit at the same time.