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Partying like it’s 2013

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KetzenbergerEven after the Great Recession and throughout the stubborn economic recovery, it’s getting harder to recall when Indiana’s fiscal house was a shambles.

Budget deficit? That’s so 2004.

So what I have to say might seem impertinent a week after Gov. Mike Pence hailed “a great victory” when the Republican-dominated General Assembly approved a budget with new tax cuts and a projected surplus. But I can’t shake the old Prince tune “1999”—especially the chorus, “2000 zero zero party over, oops out of time.”

Lawmakers and Gov. Frank O’Bannon cut taxes for business, homeowners and families by a projected $600 million during the 1999 session. The state’s revenue surplus then was $1.6 billion and the mood was to lighten the load on taxpayers and boost education spending.

Sound familiar?

The recession began to eat into the surplus in late 2000, and by 2001 the Democrat O’Bannon and the politically split General Assembly struggled to reach agreement on a deficit budget.

O’Bannon and majority Democrats in the House openly disagreed on budget priorities and the governor drew the ire of a majority of lawmakers when he vetoed their carefully crafted pay raise. The next two-year budget included more money for education but little else as the state scrambled to reduce a projected $800 million deficit between revenue and expenditures.

Let’s step out of the Wayback Machine now and step up to a graph of economic growth since World War II. The pattern of growth and retraction looks like rolling waves, up for a few years, then down for a year or so, then back up. It gets a little distorted over the last 20 years, but you get the idea.

We don’t want to believe it, but the economy will shrink again. When the next recession happens, it will magnify the loss of tax revenue caused by the reduction of income and financial institutions taxes, and the elimination of the inheritance tax. At some point, the General Assembly will recalibrate. Lawmakers will cut spending and they might even raise taxes. It’s the way things happen.

None of this is meant to dismiss or demean the policy choices exhibited in the new budget. As the governor observed right after the budget passed, it “put taxpayers first.” State revenue will decline $500 million a year due to the tax reductions.

The state plans to use cash to pay off some debt early and build some university buildings without bonds. Increased appropriations for education and roads also will reduce the surplus. Yet last month’s rosy economic forecast leads to a projected surplus of $1.5 billion to $2 billion when fiscal year 2015 ends.

Were there other options? Sure. Instead of income tax cuts, lawmakers could have put more money into education, roads or assistance programs. Even with the 3-percent increase for primary education in this budget, the appropriation is about on par with the fiscal year 2010-2011 budget, because $300 million was cut during the recession and not restored in the current budget.

Indiana’s fiscal strength allowed the General Assembly many policy options, and it chose to reduce taxes and boost some appropriations. These are logical and reasonable choices.

Yet try as we might, we cannot control the economic cycles. Gov. Robert Orr wasn’t even through his second year in office before he called a 1982 special session to raise income and sales taxes after the last worst recession since the Depression.

History’s tough.•

__________

Ketzenberger is president of the Indiana Fiscal Policy Institute. Send comments on this column to ibjedit@ibj.com.

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  1. Those of you yelling to deport them all should at least understand that the law allows minors (if not from a bordering country) to argue for asylum. If you don't like the law, you can petition Congress to change it. But you can't blindly scream that they all need to be deported now, unless you want your government to just decide which laws to follow and which to ignore.

  2. 52,000 children in a country with a population of nearly 300 million is decimal dust or a nano-amount of people that can be easily absorbed. In addition, the flow of children from central American countries is decreasing. BL - the country can easily absorb these children while at the same time trying to discourage more children from coming. There is tension between economic concerns and the values of Judeo-Christian believers. But, I cannot see how the economic argument can stand up against the values of the believers, which most people in this country espouse (but perhaps don't practice). The Governor, who is an alleged religious man and a family man, seems to favor the economic argument; I do not see how his position is tenable under the circumstances. Yes, this is a complicated situation made worse by politics but....these are helpless children without parents and many want to simply "ship" them back to who knows where. Where are our Hoosier hearts? I thought the term Hoosier was synonymous with hospitable.

  3. Illegal aliens. Not undocumented workers (too young anyway). I note that this article never uses the word illegal and calls them immigrants. Being married to a naturalized citizen, these people are criminals and need to be deported as soon as humanly possible. The border needs to be closed NOW.

  4. Send them back NOW.

  5. deport now

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