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Column: Tax policy taking us down path to backwardness

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This story requires a long time line. It is suggested you put on your slippers, snuggle in something comfortable and put your favorite beverage by your side.

Once upon a time, back in the 1970s, Indiana’s per capita personal income was higher than that of the nation as a whole. It was an era when only a few politicians thought about economic development and few communities had a functioning local economic development organization.

Local property taxes were reduced, and the state sales tax was increased. This was a time, like ours, when the state legislature assumed greater power over local affairs.

Then something happened. Compared to the United States, Indiana personal income started to fall in 1978 and has continued to decline through 2012, with a bump up here and there.

If our state’s population had grown as fast as the nation’s, it would have been very bad for Indiana. That would have meant the per capita personal income would have fallen dramatically. However, Indiana was fortunate. Our share of the U.S. population fell continuously over the past four decades. This fact kept our per capita personal income higher than it would have been if we kept pace with the nation.

That’s right. Because we did not attract people from elsewhere as well as places such as Texas, Florida, Nevada and California, we sustained a higher per capita personal income. Yes, because native Hoosiers decided to leave for other places, our per capita personal income never dropped down to 85 percent of the U.S. level. (Now is the time to review your basic arithmetic or sip your favorite beverage.)

What are the policy implications of these long-term trends? There must be something our political leaders can do or why would they tell us they will reverse these trends?

Well, relax. They are doing something, many things in fact, to discourage people from living in Indiana.

They reduced the corporate income tax. Lots of folks marched day and night around the Statehouse demanding this cut for their employers. An Indiana with less revenue from corporations will have to depend more on ordinary taxpayers to sustain state services.

Don’t worry. That won’t happen. The income tax rate for Hoosiers is being cut back. The plan in

effect for several years has been to reduce state services by starving them of revenue.

A poor quality of state services will attract people with lower expectations and high hopes for a world in which rewards are based on luck rather than performance.

They are just the kind of people we need to keep our state lottery running strong. After a day at the casino, who cares what kind of education your neighbors’ children are receiving? Illness, disabilities, they are just bad breaks.

The businesses attracted to a state of people with poor education and an addiction to luck do not provide the wages to power the growth of personal income. But then, who wants to change our long-term Hoosier trend of failing to keep pace with the nation?

Morton Marcus is an economist, formerly with the Indiana University Kelley School of Business. Send comments to letters@dailyjournal.net.

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