Hendricks County Flyer, Avon, IN

May 13, 2013

Tax cuts and an 8.7 percent jobless rate

By Brian Howey
CNHI

— There were other issues that had potentially greater financial impact or will leave a more resolute imprint on people’s lives, such as Medicaid expansion and Common Core.

But in gauging the success of this year’s Indiana General Assembly, the marquee item came down to the tax cut.

And it was an issue that was finally hammered out just over 48 hours before the session ended.

“There was some very vigorous discussion,” said Gov. Mike Pence, whose first term will be defined, in part, by his pursuit of a 10 percent income tax cut. “We had some disagreements, some in public, more frequently in private. But I think the good news for Hoosiers today is we came together to serve the best interests of Indiana”

A recent Howey Politics Indiana Poll reinforced the notion that Hoosier voters wanted a tax cut. The poll by Bellwether Research showed that while 39 percent supported the Pence tax plan, 33 percent supported the Senate Republican version which called for a 3.3 percent cut. Combined, that was 72 percent favoring some form of a tax cut. Only 17 percent said neither. Still, 60 percent were not supporting Pence’s plan.

Asked when the deal was struck, Pence paused for a considerable moment, then said, “I think it was the night before the deal was announced.” That came when the tax cut package included 5 percent, not 10 percent, on the income tax cut, as well as accelerating the inheritance tax repeal, and a rollback in the corporate and financial institutions taxes.

“After the Senate produced their budget that included income tax relief,” Pence continued, “we began in earnest around this table to meet on a daily basis, sometimes more often, with the fiscal leaders of the House and Senate, and there was a lot of give and take. You’ve got to understand I’m someone who believes you ask for the order and I kept on asking for what we had proposed.”

“But at the end of the day, I think the tax relief we crafted together was better than what I was proposing,” Pence acknowledged. “In the end, I’m convinced that income tax cut, the inheritance tax and the financial institution tax was just the right relief at the right time.”

House Speaker Brian Bosma called it the “largest tax cut in Indiana history.” House Minority Leader Scott Pelath, the Michigan City Democrat, saw it as a “missed opportunity” for the middle class: Not much money into the wallets and not enough to spur job creation.

When in full effect, the numbers look like this: $1million in income (say a small business) equals $1,700 a year; $500,000 in income (say a smaller business) equals $850 a year; $100,000 household income equals $170 a year; $50,000 household income equals $85 a year.

The $850 cut level equals about $70 a month or $2.30 a day (which would be good for a latte at Starbucks). Some speculate that an income tax cut that size will not stimulate job creation, but might help with job retention at the margins for the smaller businesses filing as individuals.

Bigger job creation potential is in the already passed cuts in the corporate income tax rate from 8.5 percent to 6.5 percent and the inheritance tax elimination. Small businesses and farms can now be passed on to subsequent generations and there likely will be fewer break-ups or sales to fund a tax liability. Banks and c-corps, in theory, will have more cash to fund expansions, make hires or return to shareholders.

Pence sees beyond the small amount of money middle class Hoosiers will get, instead focusing on $300 million eventually spilling into the state’s economy that is still beleaguered by an 8.7 percent jobless rate. It’s been in that range going on five years now. Five years.

Pence reminded the press, “I said at the outset of the General Assembly I was going to make job creation job one. I believe that by passing an honestly balanced budget that includes the kind of tax relief and strategic investment that will promote job creation we’ve done just that.”

I asked the governor what his message is to Indiana employers, who will benefit far more — at least initially — from the tax cuts than the middle class. Pence said, “Look, we’ve got 8.7 percent unemployment in Indiana. A lot of Hoosiers are hurting.”

“My message to employers large and small is that it’s time to invest in Indiana,” Pence said. “And my message outside of the state is, ‘It’s time to come to Indiana.’ I have to tell you one of the most amusing things I saw in the aftermath of the news that we had reached an agreement on tax relief was posted on my Facebook page: ‘That’s it. That settles it. I’m moving to Indiana.’”

“My message to all our businesses is that we want to roll our sleeves up, we want the state of Indiana to continue to look for ways to be the best place in America to start a business, grow a business,” Pence added.

So we’ll see whether these cuts will result in jobs and what the political impact on the 2014 and ‘16 elections will be.

— Brian Howey publishes online at www.howeypolitics.com. Find him on Twitter @hwypol.