MARCUS: Indiana third-worst in pay growth

January 9, 2010

Our legislators are reconvening in Indianapolis to “do the people’s business.” What they do actually is send tremors though the fiscal foundations of our state. Households and businesses cannot figure out our tax structure or our spending priorities. Year after year, stability is sacrificed for electoral expedience.

Is fiddling with the property tax so important that legislators can ignore our state’s long-term problems? Among those problems are the state’s infrastructure and the educational content taught in our schools. What we know and can do determines how we work and what we earn.

Let’s look at what happened in the seven years from 2001 to 2008 to the average Hoosier worker’s compensation. This figure includes wages and salaries as well as employers’ contributions to public and private health and retirement benefits.

Indiana workers had an increase in average compensation of $9,600, going from $38,500 to $48,200. Other than the apparent difference that arises from rounding the numbers, this sounds good. Doesn’t it? Read on.

That $9,600 Hoosier increase compares with a $12,600 advance by the average U.S. worker. Furthermore, our worker’s real increase, after adjusting for inflation, was 4.8 percent over 2001, compared with an 8.3-percent advance nationally. Our average compensation ranked 28th among the 50 states in 2001; we fell to 33rd in 2008. During this period, Indiana had the third-worst rate of growth in compensation in the nation.

These dismal figures demand attention. We need to provide workers with the skills and companies with the infrastructure required by a modern economy. If workers choose to leave Indiana, we can take pride in helping our citizens do well wherever employers are seeking appropriately educated workers.

Instead of focusing on the economy, legislators seek to freeze property taxes at some percentage of property’s assessed value. The idea is to deny “free-spending” local officials the power to determine how much money should be raised from a local tax to support local services.

This battle to defeat local democracy presumes that spending and taxing decisions for counties, cities, schools and libraries are best made by the legislative leadership, not by those elected by the people of Indiana in their many and diverse communities.

How do you destroy local government? Take away its power to raise money for its necessary activities and load it up with unfunded mandates to meet the whims of the General Assembly. Of course, it is necessary to give individual places exemptions when there are horses to be traded (think Lucas Oil Stadium).

A few years back, the Indiana Supreme Court rightly ruled that our methods of property assessment were unconstitutional. How did legislators respond? They adopted a system of reassessment based on the assumption that when your neighbors sell their properties, your house will bring the same results when put on the market.

The fallacy here is that housing is not an undifferentiated commodity. Each bushel of barley sells at the same price, but not houses in the same neighborhood. However, our legislators jumped at this new system that treats all of us equally in an unfair fashion. They wouldn’t just simplify the system, eliminate the credits and exemptions, and let it be to see how things go.

Today, property taxpayers have no idea what will happen next. The 1-percent cap for homeowners, even if put into the constitution, will be violated by future interventions of the General Assembly. At the same time, the political leaders of those 150 men and women will squeeze local governments until Indiana sinks further behind the nation in the education, environmental, communication and transportation needs of contemporary life.

Can a people ill-prepared for the future expect a good economy in the years ahead? It’s time for the General Assembly to take an oath to do no harm and then go home until they are ready to face our real problems.•


Marcus taught economics for more than 30 years at Indiana University and is the former director of IU’s Business Research Center. His column appears weekly. He can be reached at mmarcus@ibj.com.


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