June 7, 2002
Elevating the Indiana Budget Debate
A surprisingly long run of years with revenue collections in excess of expectations allowed states like Indiana to react to most fiscal problems by simply kicking the can down the road. Underfunded public pensions? Accelerating medicaid expenditures? Unconstitutional tax assessment methods? No problem, it seemed, was so important that it couldn't be pushed off the table and onto next year's docket.
The fat revenue stream of only a few years back did two things to our psyches. By keeping coffers full, it deflated the sense of urgency that is always needed to bring about the changes that require sacrifice. And it also gave ammunition to defenders of the status quo. After all, with so much cash coming in, how bad could our problems really be?
But just as there was a lack of far-sightedness in those days of wine and roses, there has also been a disturbing loss of vision evidenced in the wrangling over the state's current budget crisis. The state's dire fiscal straits make it almost certain that some unpleasant changes to taxes and expenditures will soon be forced upon us. As we face these difficult decisions, we owe it to ourselves to illuminate, not obfuscate, the logic governing our choices.
To begin with, we should own up to this simple fact: raising taxes will not help the state economy get better. With each month's report of the state's faltering revenue stream, the sense of urgency in the special session to act decisively to head off painful cuts to state programs grows. But there is another edge to the sword.
The case for tax hikes could just as easily be said to grow weaker with every report of widening revenue shortfalls. After all, those reports are also telling us that the economy is more fragile than we thought it was. And reducing the income and profits of Hoosier households and businesses in the midst of a recession risks making the problem worse.
The logic tends to get a bit slippery on the topic of gambling regulation as well. Whenever tax dollars run short, the lobbyists for the gaming industry play their trump card. Unlike taxes, no one forces us to buy lottery tickets or feed our money into slot machines, right? So raising public money off these activities must be preferred to hiking up compulsory tax rates.
Moral issues aside, there's a problem with that argument. The state makes money off of gambling because it outlaws direct competition. How long do you think the Hoosier Lottery would remain afloat if the Vegas casinos were allowed to set up their own numbers games next door? That's called monopoly, and it’s not thought of as something that's beneficial for the customer. We might also enhance revenues if the state were to take over, say, the dry cleaning or the taxicab business, but few of us would say that was in our best interests.
Finally, there is the matter of trying to pound the square peg of a permanent tax increase into the round hole of a recessionary revenue shortfall. It’s not quite as simple as that, of course, since the simultaneous problem of tax restructuring faced by the state does necessitate permanent solutions as well. But if the threat of red ink in the state budget requires hikes in cigarette taxes and other revenue enhancements that have no expiration date, then we are saying that the state's revenue shortfall is permanent as well. And since recessions are not permanent phenomena, that means that the problem we are really addressing is spending growth.
Raising taxes to rescue threatened programs may in fact be the best course of action our leaders can take to resolve the budget difficulties we're facing. But let's be honest about what we're doing and why we're doing it.
About the Author
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