Indiana is bursting at the seams with cash, so the General Assembly’s first instinct is to give it away.
The Indiana House passed a $1 billion tax cut package this past week that is now on its way to the Senate. But are they cutting tax revenue that is actually there and sustainable long term, or are they cutting the many one-time bonus checks the state and its residents received over the last two years?
If you go back to 2019 before the pandemic, Indiana’s budget forecasters were estimating slightly over $400 million in tax revenue growth for 2020 and 2021. Then the pandemic happened and the state was suddenly incurring huge expenses it did not expect.
As of July 2020, the state was looking at a $900 million loss on the fiscal year, which was covered by making cuts to its state departments and covering with money in savings. Then, by the time fiscal year 2021 ended, Indiana was now suddenly bursting with so much money that it triggered an automatic refund to taxpayers.
So how did the state suddenly make up a big 2020 loss and then earn so much more over the next year that the state had too much money in the midst of a pandemic when the labor force was still recovering from the economic shocks of a 2020 shutdown and lower consumer spending as people stayed home? Where did that money come from?
The answer is pretty obvious — it came from the federal government.
The federal government, during both President Donald Trump’s final year and then in early 2021 with the Democrats-only American Rescue Plan, pumped money through just about every channel of the U.S. economy.
Not only did COVID-19 support programs flood into the state to cover its costs as well as help it bolster Hoosiers in need, households received thousands of dollars from two stimulus checks under the Trump administration and another big one from the Biden administration.
Prior to this session Rep. Dave Abbott (R-Rome City) said he had concerns about the revenue sustainability (but then voted for the tax cut this past week anyway). State Sen. Sue Glick (R-LaGrange) and Sen. Dennis Kruse (R-Auburn) also both expressed some skepticism about rushing to cut taxes amid the current conditions.
The Senate does have a history of being much more cautious with its money than the House, so whether the tax cut survives as is or gets trimmed down or outright canceled this session is an open question.
Lawmakers would be wiser to wait an extra year. Next year is a “long” session where state lawmakers craft a new two-year budget.
It would make sense to consider a tax cut at that time, when you’re sitting down studying your income and expenses and then deciding whether there’s enough left over to afford a cut.
If a big cut now puts the state in the bind later, you know lawmakers won’t hike taxes back to make up the shortfall. They’ll make spending cuts instead, despite the state’s history of too-often underfunding services.
Senators should approach this tax cut cautiously. If they’re convinced the surplus is real, go for it. But if there’s any doubt, they should press pause for a year.
THE NEWS-SUN (Kendallville)
