"IT IS THE DUTY OF THE PATRIOT TO PROTECT HIS COUNTRY FROM THE GOVERNMENT." - THOMAS PAINE (1737-1809)


Wednesday, January 14, 2009

STATE OF THE STATE ADDRESS

The following is the text from Governor Mitch Daniels' State of the State Address;

Fellow public servants and fellow citizens. Together again! Thank you as always for the privilege of this assignment, and of this podium.

We gather annually to review the state of our state, but rarely at a time of such national and even international alarm. For Indiana, tonight is of course a night for facing difficulties, but doing so with confidence, and even pride.

I awake every day glad for many reasons that I am a Hoosier. And though we meet tonight in an hour of great stress, we have cause if not for gladness then at least for relief, that it is in Indiana we are meeting. For, thanks in large part to the people here assembled, we can speak tonight of challenge, but not crisis; issues, but not emergencies. We will examine the state of our state soberly, but with satisfaction in the knowledge that here the people's business has been handled better than in so many other places. We will speak realistically, but positively, recognizing that in predicament there is opportunity, and in tough times the possibility to separate from the pack and emerge stronger than before.

No assignment will test us all more than our most basic one, the proper stewardship of the people's money. Global trends set in motion far from here have severely reduced the revenue available for public purposes in the indefinite future. So be it. Thanks to the prudence, and the courage, of people present, Indiana faces this recession in far different shape than it did on past occasions, and far different condition than our sister states. People on this floor crafted with us consecutively two of the tightest budgets in state history. People in those balconies have managed government with businesslike care for every tax dollar. Together, you not only brought our state out of bankruptcy, you placed it in strong condition to weather the difficulties ahead. You merit the thanks of those who sent you here for a job well done.

We must apply the principles that have served us so well to the tasks now before us. I have submitted to you a budget proposal that meets the test of honest balance, by spending no more than it takes in. It does so despite the daunting projection that revenues will still be lower two years from now than we were told to expect in this fiscal year.

This budget is full of hard decisions and unwelcome choices. But many of its provisions would make sense in the best of times: to stop spending taxpayers' dollars on programs that have fulfilled their purpose, or are failing to accomplish their purpose, or were never essential public purposes in the first place.

As always, we will approach these decisions in a spirit of compromise and shared responsibility. But for clarity's sake, let me establish some boundary conditions, a framework within which all sorts of alternatives would be acceptable.

First, no tax increases. A state striving for economic greatness should constantly be looking for ways to reduce its burden on workers and enterprise. A time of recession is the very last time at which government should add to the struggles of the citizens for whom it works.

Preserving government intact at the expense of families and businesses would be wrong in human terms and backwards in economic terms. The dollars claimed by higher taxes would come from families who need them more than ever to get by. They would come from businesses which would otherwise use them to keep someone on the payroll, or add a new job. Let's agree right now that, whatever course we take this budget year, higher taxes will play no part in it.

With equal resolution we must reject the use of gimmickry. Delaying payments to schools, siphoning dollars from pension funds, and other such practices must be left in the museum of bad government where we sent them four years ago. And we must preserve and safeguard the reserve funds which together we have rebuilt. The forecasters missed in the current year by a billion dollars; who is to say it cannot happen again? None of us knows how long this downturn will last, or how much tougher it may become to protect essential services in the next few years. If we ran through our balances now, where would we be if better times did not return soon?

One area for special care is public education. The commitment of Indiana taxpayers to our schools is virtually unsurpassed. We now spend $11,000 per student, and as a share of Hoosier incomes, we dig deeper than the taxpayers of every state but four. As we meet tonight, states all over America are slashing education spending: by $2 billion in New York, $2.3 billion in Florida, $2.5 billion in California so far. Virginia last week cut per pupil spending by seven percent. In this environment, protecting education funding at this year's levels would be a significant victory and we should aim for it.

Besides, there is a massive new funding source available to us that won't cost taxpayers an additional cent, and that is to begin spending the education dollar more efficiently than we do today. Especially when basic academic programs are lacking, it is totally unacceptable that 39 cents of every education dollar is spent outside the classroom. It is inexcusable that fewer than half of school employees are teachers, the third worst ratio in America. The longer the payrolls of non-teaching adults, the more we shortchange the life preparation of our young people.

One dollar per year health insurance for school board members? That's not right - put the children first. A superintendent and staff for 800, 600, 500 students but only one choice of foreign language? That's not right - put the children first. Three, four, five school bureaucracies in counties that do not provide modern science labs, Advanced Placement courses, or licensed physics teachers? No, put the children first. The goal is smaller schools, smaller classrooms, more and better paid teachers, better academic opportunities for our kids, through lower overhead.

Superintendent Bennett and I have submitted legislation to you to move tax dollars out of the back office and into the classroom; no one who obstructs that goal can claim to be an advocate of children and learning. But, let's state the case more positively. We have here a huge opportunity; with each single percentage point of improvement we could hire two thousand more teachers. I invite every legislator to help us shape an effective new approach that sends many more education dollars into the classrooms where our kids' futures are being determined.

There is something else we must do that will not cost a single new dollar. Education cannot begin until disorder and chaos ends, so I ask this Assembly to approve the bill I have sent you to reestablish complete, unquestioned discipline in the schools of our state.

We ask so much of our teachers already. It is just not tolerable to make them put up with misbehavior and insubordination, to say nothing of profanity, physical threats, and the risk of legal harassment if they attempt to control the students under their authority. It is time Indiana said to its children, sit down and hush up; to their parents, if your child is causing trouble and harming some other student's education, take it up with your kid, not the teacher or principal. And to the lawyers, butt out; you expect order in the courts where you practice your profession, we are going to have order in the classrooms where our teachers practice theirs.

A time of fiscal austerity regrettably will require each of us to forgo for now priorities about which we feel strongly. With disappointment, I am postponing asking this Assembly to provide complete state funding of Full-Day Kindergarten. We have made huge, sixfold advances in state spending for this purpose, and now more than two-thirds of our five-year-olds attend. Completion of this goal remains essential in my judgment, and if room for the last step can be found within a responsible budget, I will be thrilled to sign it. But we saw no way to accommodate the final expansion this year without reducing other education funding, so my budget recommendation omits it.

Likewise with the idea of guaranteed college tuition. This plan as I proposed it would not have involved additional state spending, but here external events intervened. First, a startling and frankly senseless federal legal opinion cast a cloud over our preferred financing option. Then, the collapse of world credit markets, and the decline of Hoosier Lottery revenues, makes our backup approach impractical for now. I intend to revive it as soon as favorable conditions return.

But as we await better days, we should be positive, even exhilarated, by two undeniable truths. First, times of stringency are optimal times for new thinking and breakthroughs in spending the same dollars more wisely. We are rightly encouraged to think of a budget bind as an opportunity to innovate.

Second, there are so many important actions we can take that cost nothing at all. 2009 is a great year to move on major reforms that place no strain on the budgets of today, and promise to make the budgets of tomorrow more manageable and friendly to taxpayers.

The single most obvious opening is simply to continue the historic progress this Assembly made last year in controlling property taxes in our state. By overwhelming bipartisan majorities, you reduced property taxes by more than a third. You reduced monthly mortgage payments significantly, sometimes dramatically. You undoubtedly saved many homeowners from hardship or even foreclosure.

But you did something even more important. You provided taxpayers the long-term protection of caps, guarding against a return of the exploitative, unaffordable local tax rates we had known. But those caps, until written not only in statute but also into our state's constitution, will always be vulnerable to a judge's whim or to retraction by some future legislature.

Our wisely deliberative process for amending the state's constitution requires three separate steps, and your part is half done. Now you must vote a second time to submit this new system of taxpayer protection to the judgment of our fellow citizens, and I ask you to do so promptly. What was such a good idea last March cannot suddenly be a bad one nine months later.

It is argued, correctly, that a couple years' experience will be valuable in making a final decision, but that is not in question. Even if passed tomorrow morning, your second resolution will afford us three full years of information before a final vote occurs in public referendum late next year. Your procrastination will add nothing to what we know. So the only real question is, do you trust the people of Indiana to weigh the evidence and make this decision, or don't you? Show your faith in our fellow citizens by affirming now what you voted for so proudly just months ago.

The property tax cuts of 2008 have already set Indiana apart as a place that puts taxpayers first. Another cost-free reform to further our reputation for taxpayer protection is an automatic refund of tax dollars when state government has all that it reasonably needs. I offered this idea to our fellow citizens in the election just passed, and consider its endorsement part of the verdict they rendered.

With revenues under pressure, there is no prospect of a refund being triggered any year soon. But that just makes now an appropriate time to enact it, when we can examine it purely on its merits, as a tool for keeping government within reasonable limits. With its passage, Indiana would establish the principle that, past some point, government should stop taking money it does not need from working families who do need it. And it would guard against the mistakes, now on sad display, of so many other states which let spending balloon when revenues were plentiful and now are painfully unwinding those excesses. In the days since we first proposed it, this idea has sparked interest around the country. Let's take yet another step that shows America where the best new ideas come from, and happen first.

The largest and most momentous of our opportunities lies in the area of governmental reform. The cost in dollars, confusion, and just plain bad government of our 150-year-old system is by now completely beyond dispute. The report so ably researched and written by former Governor Joe Kernan, Chief Justice Shepard, and five other outstanding citizens lays out the folly of too many politicians, too many layers, too many taxing units, all producing too little accountability and too few results. If there is anyone present who, given a blank slate, would draw up our system just as it is, please stand up now. I thought not.

As intended at the outset, we have all had a full year to study the report and meditate on its recommendations. The public has spoken loudly, in referenda, in opinion surveys, and in the most recent general election, each time in clear favor of change. The hour for action has arrived.

After a year of listening to you, to local officials, and to our fellow citizens, I have sent you a package comprising some two-thirds of the Commission's 27 recommendations, either as proposed or in some close variation. Treat it as a starting point, but please treat it seriously, in a spirit of reform. This area is ideally suited to bipartisan cooperation and craftsmanship. Let's move forward together, and boldly. The only motion out of order is no motion at all.

In an all-too-typical criticism, one author wrote "Hoosiers have been resisting change since the first settlers arrived." Bringing local and school government out of the pioneer days will provide conclusive proof that we truly have left such a self-defeating outlook in the history books where it belongs.

It's not just the historians who will need to update their views of our state. As recently as 2007, an essayist wrote, "More than any state I know of, Indiana suffers from a crippling inferiority complex...Hoosiers struggle desperately to prove to themselves and the world that they have a higher function than simply filling up the space between Cincinnati and Chicago." That's Cincinnati, as in Ohio, with its $7 billion deficit and downgraded credit rating, begging Washington for a massive handout. That's Chicago, as in Illinois, a perennial ethical embarrassment where the government is floating billions in suspect paper just to pay its back bills.

Across America tonight, there are dozens of states that would gladly change places with Indiana. We are fiscally steady, they are crawling to Congress for bailouts. We are building the infrastructure of a prosperous future, they are pleading for money just to maintain the roads and bridges they have now. They are raising state taxes of all kinds, while we are holding the line. Their property taxes are exploding, while ours are coming down for good. Who here feels inferior to that?

Two years ago on this occasion, I quoted Governor Schwarzenegger as saying that, unlike his so-called Golden State, if anyone spoke of an Indiana dream no one would know what that meant. Tonight, when the California state deficit is three times as large as the entire state budget we will be working on, their dreams out there must be of a situation like ours.

No one ever wishes for a recession. No one here is blind to the severity of the problems we now confront. Tonight we say to those who are struggling, those who are fearful, our hearts and our every thought are with you. In the ways in which public action can bring relief, no one will work harder. And to those in a position to add private assistance, we say rise to this moment: give an extra dollar, spend an extra hour, grasp another hand. The only true compassion is in those who give voluntarily of themselves, and these are the times when we need it most.

But tough times are also times for differentiation, for separating winners from whiners, the brave from the weak of will. In down markets, good businesses capture share from weaker ones. In high seas, the best crews bring their ships to port safely, and first.

Besides, we Hoosiers have had practice; as we showed in the floods of June and the storms of September, we know how to handle trouble. Just as we guarded against these economic times better than other states, so we will wade through them now with greater success.

The Indiana of 2009 is a state in motion, against its problems and with an alacrity beyond our counterparts. Not despite but because of the difficulties of the day, this legislature must make this another year of reform, in which still more cornerstones of a better future are put in place.

We must never miss a chance to move, to make improvements, to modernize. Doing so while others are paralyzed will demonstrate yet again that ours is a state where change is much more than a slogan. A state that faces forward, fearlessly. A state to whom the future belongs.

These two Houses have done so much to distinguish themselves, and Indiana, these last few years. This is a year not for intermission but for encores. Anyone can see the dangers before us. We must be among those who see through trouble to opportunity, beyond hurdles to the winner's circle that awaits us.

God bless this Assembly and this great state.

Blunt Proof of the Feasibility to Permanently Abolish Property Tax

IMMEDIATE RELEASE
Media Contacts:
Melyssa Donaghy 317-938-8913
Max Katz 765-409-6669
www.HoosiersForFairTaxation.com

BLUNT PROOF OF THE FEASIBILITY TO PERMANENTLY ABOLISH PROPERTY TAX.
Hoosiers For Fair Taxation, Senator Delph, Representative Noe, Representative Elrod and many other legislators along with Stop Indiana, attorney John Price, Eric Miller's Advance America, and the Statewide Taxpayer Alliance know that property tax abolishment, without substantial increases in sales tax and income tax, is realistic and possible. The economist Dr. Bill Styring's 2/2/2 Plan demonstrates that the state of Indiana can completely replace property tax without changing the state's current spending habits.

Dr. Styring's plan does not account for positive changes in Indiana's economy that will undoubtedly follow the elimination of property tax such as heavy real estate investment and increased consumer spending due to increased statewide disposable income. The real estate investment in Indiana alone would cause such an economic boom that it could likely end our abandoned property and foreclosure crisis. Property tax elimination would also likely cause a surge in Indiana's population as more people locate to Indiana to take advantage of real estate purchase opportunities without the burden of property tax. With the population surge would come more sales and income taxes.

The General Assembly does not have to adopt a specific plan until the year 2011. In the meantime, we recommend that the General Assembly approves the 27steps outlined in the report prepared by the Sheperd Kernan commission. While the Governor's commission cannot forecast the savings to the state once the plan is implemented, there is no doubt that the savings would be substantial--perhaps equivalent to the the entire property tax burden currently placed on Indiana's homeowners because our legislators have not had the political will to liberate Indiana's governing structure and her taxpayers from the 19th century.

Our citizen networks will work to replace all legislators who do not support property tax repeal in the November 2008 election.

The 2/2/2 Plan, to replace property taxes in Indiana based upon the latest revenue forecast (07/08 fiscal, estimate):

1) Current IN sales tax (state level rate of 6%): $5.601 billion2% increase would yield an additional $1.867 billion

2) Current corporate profits tax: ~$2 billion

2% increase would yield an additional $.286 billion ($286M)

3) A 2% statewide average of the COIT would yield $2.705 billion to cover local civil units of gov.

By adding these three together ($1.867 billion + $.286 billion + $2.705 billion), a total of $4.858 billion is realized; enough revenue to replace property taxes.

PROPERTY TAX HISTORY PREPARED BY DR. BILL STYRING
Indiana has a 70-plus year history of attempts to lower property taxes by raising other, non-property taxes. In every case these have failed miserably. The new taxes, or higher rates on old taxes, remain in place. And, in short order, property taxes rise back to their old levels, poised to roar even higher.

--1933. General Assembly imposes two new taxes: an individual gross income tax and a corporate gross income tax. The morgue of the Indianapolis Star indicates that the political leadership at the time said this was for property tax relief (1933 was the pits of the Great Depression, and people were losing their homes. Home prices declined by over 40% in the 1929-1933 period). Property tax relief was nonexistent. The state used the money to bail out the state's own finances.

--1963. General Assembly imposes a new sales tax at a rate of 2% and changes the 1933 individual gross income tax (from 1933) to an adjusted gross income tax (the one we have now) at a rate of 2%. Again, the ostensible reason was for property tax relief and again little PTR was forthcoming.

--1967. Those 1963 tax changes were raising more money than projected. The GA decides to give back 8% of sales and income tax revenue to local government for property tax relief. Local units spent the money. No PTR.

--1973. Gov. Otis Bowen launches the most determined PTR offensive yet. The sales tax goes to 4% and a new corporate supplemental net income (profits) tax is imposed. Strict property tax levy controls are imposed. It works... for a time. By 1980, property taxes adjusted for inflation are some 30% lower than in 1973. When Bowen leaves office the levy controls are relaxed. By the end of the decade, property taxes (adjusted for inflation) are back to 1973 levels. The doubling of the sales tax rate from 2% to 4% remains in place, along with the new corporate SNIT.

--2002. More fiddling with the sales tax in the hope of property tax relief. The results of this are obvious, or we wouldn't be debating the current property tax mess. All of this suggests that unless the property tax is totally ripped up by constitutional amendment, the assessment and collection mechanism dismantled, it will grow back. The PTR-inspired hikes in other taxes remain. That is our history. It is a terrible deal for taxpayers.

2. A vote in the 2008 legislative session for a constitutional amendment to repeal property taxes does not amend the constitution. It merely starts the amendment process. Amendments must be passed by two consecutively elected General Assemblies, then submitted to a referendum. Thus any amendment passed by the '08 Assembly must be passed by either the 2009 or 2010 legislatures, then submitted to the voters at the 2010 general election. The General Assembly does not need to decide on a "replacement revenue" package until the 2011 session.

3. What might such a "replacement revenue" package look like? The particular answer will come from the 2011 General Assembly and cannot be determined now (if for no other reason than forecasting state level taxes and property taxes out that far would be a most unreliable exercise. No one need be locked into any particular plan just yet. However, as an illustration that a replacement plan is feasible and less scary than many fear (we don't need to be talking about a 12% or 13% sales tax ... in fact, we should not be), consider just this one possibility.

Local sales taxes are generally very bad policy, for a whole host of reasons too numerous to mention in this short sketch. Sales and corporate taxes are best levied at the state level. It happens that roughly a 2% increase in the sales tax and a 2% increase in the corporate profits tax roughly take care of school propertytaxes. The loss of local control by the state assuming school property taxes is minimal. About the onlylocal control left is on building projects.

For local civil units, a statewide average increase in the individual adjusted gross income tax of about 2% suffices to replace local civil government property taxes, higher than 2% in some units, less than 2% in others.

Thus, a "2-2-2" plan~2% sales and 2% corporate profits at the state level for schools and a 2% average on personal income taxes for civil units—is about what would be needed. This is merely a ballpark projection to 2011.

There may be better plans, it's really a policy question for the General Assembly: do you want to make the trade of something like this in exchange for no-property-taxes-forever-on-anything? Everyone understands "zero."

4. Are there "practical problems? Of course. The two identified are how to make the civil government transition from a property tax base to an income tax base, and how to handle debt backed by property taxes. Without elaborating, the former can be handled using locator software (Map quest-type programs). The debt problem might be handled by treating the current state paid PTRC's as in lieu of property taxes (which they are) and paying PT-backed debt service from each unit's own PTRC.

Conclusion: Total elimination of the property tax via constitutional amendment is the only way to give property tax relief that will stick. The other tax action necessary to achieve this goal—in 2011-are large but not so scary as "a 13% sales tax." They are feasible. The question is for the General Assembly. Are we going to once again go down that 70-odd year path of failed PTR policies or are we going to rip the property tax up by the roots?

Posted by Hoosiers For Fair Taxation on Friday, January 4, 2008.