WSJ Editorial: Mitch the Knife

Mitch the Knife
January 31, 2005; Page A18

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Mr. Daniels' official excuse, as ever, is that raising taxes is the only way to balance the state's $250 million budget shortfall. This will surprise taxpayers who didn't hear Mr. Daniels mention it during last year's campaign. It will also seem a tad myopic to voters who know that state government spending has climbed by some 124% since the last GOP turn at the helm in 1989, or more than double the rate of inflation.

Mr. Daniels made a big issue of this Democratic spending when he campaigned last year, and he had a point. The legislature has been raiding the state's teacher pension fund to feed its spending habit, and sooner or later it will have to repay some of the nearly $400 million. The state also plays a shell game with local governments, reimbursing them for property taxes they don't collect. Local politicians have naturally taken that money and run, since they get to spend without having to propose tax increases themselves. Mr. Daniels is sensibly proposing to freeze state reimbursements at their current levels and let local governments levy their own taxes if they want any more money.

But there are other options than raising state taxes at the same time. One would be to apply the state's current rainy day fund of about $650 million to this year's shortfall; that "rainy day" has arrived, and the fund is more than double the $275 million to $300 million that the tax hike on "the rich" is expected to bring in. Another good idea would be to follow up on the amnesty for tax delinquents that Mr. Daniels mentioned on the campaign trail. That could bring in $60 to $80 million.

The other way to go is of course to cut spending. The Governor is promising to "restrain" the growth of spending by cutting the increase in Medicaid spending to 5% a year from the expected 10%, among other proposals. But a state with a vehicle fleet so large that it has more than one automobile for every three state employees is ripe for other cutting. Notwithstanding his pleas about shared "sacrifice," Mr. Daniels is still proposing to increase spending by $600 million over the next two years.

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In Washington, President Bush called Mr. Daniels "The Blade" for his budget carving. It's a shame that the people he's giving the knife to in Indianapolis are his own voters.

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