It sends the right message on whose money it really is.
Liberals are having a fit over the recently approved 5 percent cut in the state’s income tax, and they’ve coalesced around a central argument. Here’s a typical version it, from an editorial in the Bloomington Herald-Times: “For those who like averages, the ‘average’ Hoosier would realize $114 in annual tax savings, or $2.19 a week. It’s a symbolic gesture, meant to show the governor and lawmakers are on Hoosiers’ side by throwing them a few bucks that could have totaled something of significance if channeled to programs designed to improve education, help senior citizens or shore up the safety net for people living in poverty.”
It won’t do you any good, and we can put it to so much better use! It’s the flip side of the argument they always use to increase taxes. We’ll take so little you won’t even notice it, but a whole lot of littles add up to a lot we can invest in the future!
The stimulative economic effects of lower taxes should not be so casually dismissed.
That income tax reduction is not the only cut reflected in the state’s new two-year budget. The inheritance tax will be eliminated immediately instead of phased in as previously planned. The financial institutions tax will be reduced. The phase-down of the corporate tax will continue.
Add them all together, and that’s about $1.1 billion in Hoosiers’ pockets instead of government coffers. Individual taxpayers won’t feel noticeably richer, but money they have is money they can spend. As the liberals like to point out: It adds up over time. And most of those cuts affect businesses. If you lower the cost of doing business, you encourage business to grow.
That encouragement is another reason to applauded the cuts. Indiana already has a reputation for being business-friendly. In today’s climate, with the national economy still weak and sputtering, is a very good time to reinforce that image.
Despite pundits’ fondness for such descriptions as “whopping” and “record-breaking,” the truth is that almost all tax changes – both cuts and increases – are incremental. Increases are incremental because taxpayers wouldn’t stand noticeably painful reductions of their paychecks. The cuts are incremental because we get too used to government services to drastically alter them.
But there is one difference. Incremental increases send the message that the money is the government’s, and the burden is on us to prove why we should keep more of it. Incremental cuts send a message we like a whole lot more: The money is ours, and the government is obligated to make the case it deserves more of it.