The Associated Press
August 05, 2008 06:31 pm
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INDIANAPOLIS (AP) — Gov. Mitch Daniels pitched a proposal Tuesday that would give taxpayers automatic tax credits if the state’s banking account and reserves reached a level determined to be safe for weathering an economic downturn.
Daniels said he would push such a plan in the next session of the General Assembly if re-elected in November. He suggested implementing tax credits if money in the state’s main checking account and reserve funds exceeded 10 percent of that year’s budget.
He said a 10 percent cushion was in the range of what national experts believe is a prudent safety net for economic downturns, although he was open to a different figure for triggering the credits.
Under his plan, they would be doled out to taxpayers on a per capita basis on the next year’s income tax filings. Daniels said that would be the easiest way to return excess money, but he would consider other suggested methods.
“The matter of principle is it’s your money,” Daniels said at a Rotary Club of Indianapolis luncheon. “If government gets its hands on it, it’s likely to spend it.”
Daniels said such a plan could give lawmakers an incentive to be cautious about spending, knowing that if they kept it below a certain level, taxpayers would get relief legislators could take credit for providing.
“It’s better the money stay in your pocket than burn a hole in theirs,” he said.
Daniels acknowledged that the credits might not be much in some years, or even doable in others. But he said that after three years of balanced budgets and paying off debts, the health of the state’s finances was at a point in which such a plan made sense.
The state ended this past fiscal year on June 30 with about a $1.38 billion surplus — money in its main checking account and three reserve funds. That’s about $40 million more than a 10 percent threshold.
If Daniels’ plan were in place today, individual tax filers would get a $9 credit on this year’s taxes payable next year, and joint filers would get an $18 credit, according to state budget officials.
But they pointed to some years during the 1990s when the state’s surplus was much larger. In 1995, they said the surplus was $578 million above the 10 percent threshold, and the credits would be $144 for single filers and $288 for joint filers.
State Budget Director Chris Ruhl said the hope is that in some future years, credits could be much larger than $9 or $18.
Democratic gubernatorial nominee Jill Long Thompson said she was glad Daniels had joined her repeated calls for tax relief. When the fiscal year-end surplus was announced last month, she said it should be returned to taxpayers.
She specifically has urged Daniels to temporarily suspend the sales tax on gasoline, something he says he has no legal authority to do on his own. Long Thompson has said she would do that on her first day in office, and then push legislation that would cap the sales tax on gas at any pump price above $2.75.
“At this critical time in our state’s history, we need leaders who will act immediately to reverse our downward economic slide and give hardworking families a break from the high taxes that this administration has imposed,” Long Thompson said.
Democrats say the two-year budget passed during Daniels’ first year was only balanced because it relied heavily on local property taxes. Over the past two years, Daniels has won bipartisan support for increasing the cigarette tax to provide health insurance to more low-income residents, and increasing the sales tax to pay for property tax relief.
Part of that relief will come from the state assuming the rest of school operating costs and child welfare expenses now paid for with property taxes.
House Speaker Patrick Bauer, D-South Bend, reacted to Daniels’ plan by saying the state had to be cautious with its reserves because of the sluggish economy and the new property tax obligations it was taking on.
“We have to be very careful that money coming in the front door doesn’t go right out the back door,” he said, adding that the state already was providing tax relief by reducing property taxes.
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