More Tax Relief Possible for Hoosiers

December 9, 2008

Governor Mitch Daniels of Indiana is touting an innovative plan (first announced in August, before his reelection this fall) that he hopes will limit taxes and spending in the Hoosier state. At the ALEC States and Nation Policy Summit last week, Governor Daniels first reviewed the property tax reforms that he put into place earlier this year (where he cited Tax Foundation propery tax data), before giving more details on the Automatic Taxpayer Refund plan. The idea for the plan comes from Daniels’ stated belief that the government should only take enough money for necessary state spending and should then return the rest to the taxpayers who earned it. (A refreshing declaration from a state lawmaker, during a time when we are more frequently hearing calls for increasing taxes, such as from CA, MD, FL, NYC, and others.) Once the state’s budget has been balanced and sufficient funds are secured in the Rainy Day Fund, Medicaid Reserve fund, and School Rainy Day Fund, (10% of that year’s budget has been floated as “the point of fiscal sufficiency”), the rest would be shifted to an “Income Tax Reduction Fund”. This fund would then be returned to taxpayers on a per capita basis, via a credit on the next year’s income tax filing.

The Governor believes this plan could also help to provide spending restraint, as it would create a direct link between state spending and tax relief. If passed by the General Assembly this spring, the plan could fill the role of a TABOR or tax expenditure limitation statute, possibly without the problems and inflexibility that have plagued these proposals in other states. An interesting idea that we’ll be watching.

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