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2-28-02
Tax Restructuring
Past
It's an exciting time for Indiana tax policy. For
our elected officials, it's exciting in the way that anything really stressful
is exciting. The General Assembly is debating tax restructuring, and it's
considering some big ideas. Ideas like a huge reduction in the use of
property tax revenue for school budgets; big reductions in the property
tax on inventories and equipment; increases in the sales and income taxes;
creation of a franchise tax on businesses; and big reductions in one of
the corporate income taxes.
It's been a long time since Indiana had a debate
like this. We had big tax restructurings in 1963 under Gov. Matthew Welsh
and in 1973 under Gov. Otis Bowen. And we're lucky; both of these men
have published excellent memoirs. We've got a gov's-eye view of the last
two big tax restructuring debates.
Welsh was a Democrat who served a term as Indiana
governor from 1961 to 1965; he then wrote a memoir called "View from the
State House," published in1981 by the Indiana Historical Bureau.
In 1963, the state faced some tough problems, including
rising property taxes, reassessment and a budget shortfall. Both houses
of the General Assembly and both parties saw a need for changes in the
way that Indiana raised revenue. There was no sales tax or individual
income tax at the time. Most state revenue came from a gross income tax
paid by businesses and households. However, the General Assembly could
not agree on a plan and adjourned after midnight on the last day of the
session. Legislators asked Welsh when the special session would start,
and he said, "at 12:01 p.m. tomorrow! Get a good night's sleep!"
The special session lasted more than a month, but
finally the House and Senate agreed to consider a "2-2-2 plan": 2 percent
sales tax, 2 percent individual income tax and 2 percent corporate profits
tax. Indiana had never used any of these taxes before. The sales tax bill
was most controversial. It passed the House only when Speaker Richard
Guthrie held the voting machine open for a "long count," while he and
the governor persuaded reluctant House members to vote aye.
The next day, the vote in the Senate was a tie.
The lieutenant governor was Richard Ristine, a Republican serving with
a Democratic governor (that could happen back then). The lieutenant governor
chairs the Senate and votes to break ties. Ristine knew he was risking
his chance to be governor, but he said, "To get this session over with
and to get the state moving forward again, the chair votes aye." Indiana
had its sales tax.
A decade later Indiana again debated tax restructuring.
Bowen describes this struggle in "Doc, Memories from a Life in Public
Service," published in 2000 by the Indiana University Press. Bowen had
pledged to reduce property taxes during his 1972 campaign and now, as
governor, sought to deliver. He asked for property tax relief that was
"visible, lasting and substantial."
Bowen proposed increasing the sales tax from 2
percent to 4 percent to pay for the property tax cut. The debate was long,
but the House passed the increase on the last day of the session. In the
Senate, again, the vote was a tie. The lieutenant governor was Robert
Orr, and he voted aye. The Bowen plan became law. Bowen praised Orr for
risking his political future with that vote.
Ristine ran for governor in 1964 and lost. Bowen
said it may have been due to his vote for the sales tax, though 1964 was
the year Lyndon Johnson won by a landslide. Orr ran for governor in 1980
and won. Bowen says the popularity of his tax restructuring plan helped
Orr to win.
What will happen in 2002? Can't say, but if the
past is any guide, we might look for two things. The final votes in the
General Assembly could be close, and Lt. Gov. Joe Kernan may have a big
role to play.
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