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Holcomb: Fixing government leadership is critical for the success of the US
INDIANAPOLIS — Call it the "Disaster Paradox." Candidates and commentators in our dominant tribes lately claim that every national election is the last chance to save the United States from all manner of calamities.
Then, once elected, our national leaders behave as though averting disaster — or even just getting basic stuff done — is the furthest thing from their minds. Potential disasters do loom — a ticking debt bomb, an uncontrolled border and rising foreign adversaries certainly qualify — but America won’t overcome any of them for long until Washington learns how to govern again.
There are some helpful classrooms, called states. On the economic front, the contrast is remarkable. In the last six years alone, multiple U.S. Congresses and presidents have added more than $10 trillion to our national debt, which now totals over $31 trillion and equals 115% of our gross domestic product. Every American taxpayer is on the hook for a jaw-dropping $248,000 share of our nation’s unpaid bills. The Highway Trust Fund, Medicare and Social Security will be insolvent within the next 10 years. And inflation is at a 40-year high, made worse by Congress flooding the economy with unearned dollars while jobs go unfilled.
Yet the notion that this federal mess must be unraveled in a sustainable way meets little more than blame-storming and demagoguery in the nation’s capital. This year’s last-minute debt ceiling drama is no exception, having reached an agreement that fails to address the real drivers of our still ever-growing national debt.
Meanwhile, since I was sworn in as governor of Indiana in 2017, we’ve lowered our corporate income tax, lowered our personal income tax, eliminated our utility services tax, refunded $1.5 billion to taxpayers, lowered our state debt by 31%, gotten seven years ahead on payments to our Teachers Retirement Pension Fund, increased our GDP by over $100 billion, tucked away $3 billion in cash reserves and maintained a AAA state credit rating.
No, I am no genius or saint, am not running for U.S. House, Senate or president, and have never uttered the words, “Only I can fix it.” I am really proud of Indiana, but several other states can point to similar records. The common denominators need to be understood and emulated. Three big ones stand out.
First, have a plan, instead of a bag full of zingers to pull from in a two-, four- or six-year improv session. It’s no coincidence that the political turnabouts we remember in America — think of the New Deal, the Great Society, the Reagan Revolution and the Contract with America — were coherent means to stated ends, whether we agreed with all of their components or not.
In 2024, any serious candidate for congressional leadership or the presidency needs to display courage and present their detailed plans for restoring America’s finances and strength — causes greater than themselves.
Second, demonstrate a bias to action, instead of looking for who or what to blame or claim in the news cycle. Sure, Washington’s media maelstrom is a powerful distraction, but nothing on my list of Indiana’s accomplishments was easy or uncontroversial either, and none of it happened by accident or surprise. It happened because I, my predecessors and enough people in the state legislature and the private sector never let up.
Third, listen to your opponents and learn instead of demonizing them. Federal elected officials willing to do the right thing and take partial wins seem far outnumbered by attention-seekers content with building seniority while labeling themselves “fighters.” If federal legislation and executive orders undiluted by reasonable compromise were good things, then America would be in fine shape right now. We are not.
Voters get it. Even while the American dream feels more like a dimming sunset to lots of them, people name “government leadership” as the most important problem facing the country, according to the most recent Gallup survey. It ranks ahead of other serious problems because Americans correctly see our governance problems as foundational.
Bad governance is the reason that Washington cannot find a reasonable balance between our obvious needs for hard-working immigrants and a functioning border-control system, allowing instead the worst of all worlds, complete with flows of all the different drugs of the decade (fentanyl today) to meet the American demand, ultimately killing thousands of our friends and neighbors.
And bad governance is the reason that the U.S. military has not kept up with the technology upgrades and global reach of China, Russia and upstart rivals — emboldening nations to send spy balloons over America, build eavesdropping facilities off our coasts and move away from the dollar currency. Instead, they gloat as debt, drugs and discord make America an ever-easier mark.
Our history gives Americans plenty of reasons to believe that we can meet these challenges. Individual growing states provide places of certainty, stability, predictability and continuity. For these reasons alone, and countless more, we can escape today’s Disaster Paradox by acknowledging the challenges, asking those who would lead us to show up with the proper prescription in hand to fix The Big Three issues that ail us, and then rewarding results rather than rhetoric at the ballot box.
Eric J. Holcomb is the 51st governor of Indiana. He can be reached on Twitter at @GovHolcomb and by email here.
Header image: Gov. Eric Holcomb delivers his State of the State address on Jan. 10, 2023, at the Indiana Statehouse in Indianapolis. (Credit: Governor's Office)
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Lawmakers may nix the state income tax. Here’s how that could impact other taxes.
The gist
Indiana lawmakers are considering eliminating the state individual income tax as part of its review of Indiana’s tax structure.
Already state lawmakers are phasing down the state income tax. By 2027, Hoosiers will pay 2.9% on earned income, down from the current 3.15% rate. But someone making $50,000 a year would save an additional $1,450 a year if the tax was thrown out altogether.
It also would mean Indiana could lose out on the almost $8 billion it brings in yearly — or more than a third of the state’s total tax revenue.
If state lawmakers decide to end the state income tax, Hoosiers could pay more in other taxes, such as on goods.
“If you get rid of one big revenue source you either have to spend less or find other revenue,” said Larry DeBoer, an economist from Purdue University.
What’s happening
Sen. Travis Holdman, R-Markle, said nixing the tax would be “transformational” for the state, but the State and Local Tax Review Task Force, which he chairs, is still more than a year away from making a recommendation on whether to do so. The group had its second meeting Friday.
“We’re not there yet,” Holdman told State Affairs. “If we can pull this off, we’d be glad to do that but we have to figure out a way to make it happen.”
The task force is considering other potential changes as well, such as simply lowering the income tax rate or eliminating property taxes. But the idea that generated the most enthusiasm among Senate Republican leadership has been nixing the personal income tax.
Holdman clarified after Friday’s meeting that he personally would rather leave the local income tax in place, which generates roughly $4 billion for local communities. That means Hoosiers would still have to pay both local and federal income taxes, even if the state tax is eliminated.
Currently nine states don’t have an individual income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. (Washington taxes only capital gains income and New Hampshire taxes interest and dividends).
State Affairs looked at how other states have functioned without an income tax, and what doing away with it in Indiana could mean for you. Holdman pointed to Tennessee as a potential model to look at when figuring out how to make Indiana’s budget work because, he said, it’s the most similar to Indiana.
Sales taxes could increase
Probably the most feasible option to fix the budget hole would be to replace the tax dollars, at least partially, with something else.
Some states rely on higher combined local and state sales tax rates in lieu of an income tax. Tennessee, which doesn’t collect personal income taxes, has the highest average combined state and local sales tax rate in the country, with Washington falling not far behind.
In Tennessee, consumers pay on average $9.55 in taxes for each $100 item, compared to $7 in Indiana. That’s largely because local governments in Tennessee can enact their own sales taxes, while in Indiana local governments cannot.
When looking at just the state sales tax alone, Indiana is tied for the second-highest sales tax rate in the country, along with Tennessee. That means if the state wants to up its sales tax collections, it likely would have to expand the number of goods and services the state taxes. Some states, like South Dakota and Tennessee, tax groceries, for example.
Or, the state could allow local governments to collect sales taxes.
Increasing sales tax collection would likely be among the most popular options among Indiana lawmakers. Historically, Republican legislative leaders have shown support for taxes that can be applied to those visiting from out of state, instead of those that impact just those who live in Indiana. For example, Indiana has one of the highest gasoline taxes in the country.
It could mean higher property taxes
Six of the nine states that don’t have income taxes have higher property taxes on owner-occupied houses than in Indiana. Most notably, Texas’ rate is nearly double that of Indiana’s.
Property taxes are already rapidly increasing due to the rising assessed values of property. That means increasing property taxes further to make up for the budget hole likely wouldn’t be popular.
Residential property tax liability was expected to increase by more than 18% on average across the state this year, according to an analysis by the Association of Indiana Counties and Policy Analytics. Lawmakers dealt with significant pressure to address the issue during the most recent legislative session.
Some states rely on other taxes
Some states are uniquely positioned to capitalize on other taxes. Tourism-heavy Florida, for example, allows counties to implement taxes on hotels.
Meanwhile, Alaska and Wyoming benefit from taxes on oil, a natural resource Indiana doesn’t have.
So does Indiana have anything comparable or uniquely Hoosier to tax?
Not really, but lawmakers could legalize — and tax — marijuana. That’s unlikely. Republican leaders have repeatedly emphasized that they don’t want to legalize the product until the federal government does so.
Even if lawmakers did have a change of heart, the money wouldn’t be enough to backfill the $8 billion loss in personal income taxes. The tax dollars from marijuana only make up a small portion of revenue in the states that do tax the product. In Colorado, for example, taxing cannabis generates $350 million, or just 1.7% of total revenues.
Holdman said, “Nothing’s off the table.”
Cutting income taxes could mean less government spending
A majority of the nine states without an income tax spend less per person on state and local services when looking at both local and state governments combined, according to data from DeBoer. That includes Tennessee.
Lt. Gov Suzanne Crouch, a Republican gubernatorial candidate who has recently centered her campaign around calls to “axe the tax,” has largely built her plan on less spending. Aside from looking for efficiencies, she wants to limit the state’s budget to an increase of 2% each year.
State revenues are forecast to increase 2.5% from fiscal year 2023 to FY 2024. She also wants to reduce the budget surplus to what is “reasonably necessary,” and use that to help implement tax cuts.
Other Republican gubernatorial candidates have questioned whether those cuts can result in enough savings to completely end the individual income tax.
Cuts in the budget could of course mean fewer government programs or a reduction in how much money schools receive each year.
How Indiana’s tax climate compares to other states
Kurt Couchman, a senior fellow in fiscal policy for Americans for Prosperity, called the state “frugal” and “responsible with taxpayer dollars.”
The Tax Foundation ranks Indiana as the ninth-most business-friendly state when it comes to taxes.
Two former prominent Republican lawmakers warned the task force that nixing the income tax altogether could be problematic, in part because Indiana doesn’t have the climate or tourism of some states, such as Florida and Texas. Income taxes make up a larger portion of Indiana’s total revenues than 41 other states, highlighting the state’s reliance on it.
“I wonder if that’s really going to hold up,” said former Sen. Luke Kenley, who previously chaired the Senate Appropriations Committee. “If you eliminate any part of it, when you hit the next recession, the first thing that’s going to happen is they’re going to reinstate [it] even on a temporary basis.”
Kenley is concerned that should that happen, the state would implement a progressive tax rate that taxes those who earn more at a higher rate, rather than revert to the flat one now in place.
What’s next
The task force will meet again Oct. 20 and hear from other experts, including former Rep Tim Brown, the former House Ways and Means chair. Holdman said there will be an opportunity for public testimony in the future, likely at a January meeting.
The task force is poised to issue recommendations just before the 2025 legislative session. So any additional tax savings or hits to state revenue would be farther down the road.
Contact Kaitlin Lange on X @kaitlin_lange or email her at [email protected].
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Header image: (Credit: Ana Baraulia)
State Auditor Tera Klutz to resign less than a year into term
State Auditor Tera Klutz will be stepping down from office later this year, roughly one year after she was reelected, she announced today.
Gov. Eric Holcomb will appoint a replacement to serve out the remaining three years of her term when she departs Dec. 1, enabling him to leave his mark on state government even after his own term ends next year.
Klutz, a Republican and the state’s first certified public accountant to serve as auditor, said the decision to leave public office before her term was up was best for her family.
“I am excited about my next chapter — spending more time with family and friends, and returning to a career in the private sector,” said Klutz, the state’s chief financial officer, in a news release.
Through a spokesperson, Klutz did not disclose where she will be working.
“The highlight of my public service career has been working with my team of dedicated public servants who provide accountable and reliable back-office functions that keep our State running efficiently and successfully,” Klutz said in the release. “My service as the State Comptroller afforded me the opportunity to travel the state and meet so many Hoosiers. I am especially grateful for the welcome and respect our local and state officials have shown me.”
In the release, Klutz said during her time in office she overhauled the state’s transparency portal and modernized the state’s payroll system. She also lobbied the state legislature this past legislative session to change her office’s public name to state comptroller to more accurately reflect its duties.
Klutz is the fourth state auditor in a row to not finish out their term.
She was appointed by Holcomb in 2017 to replace then-auditor Suzanne Crouch, who left the office to serve as Holcomb’s No. 2. Klutz was later elected in 2018 and won her general reelection bid by nearly 24 percentage points in November 2022, after running unopposed at the Republican convention.
Prior to serving in state government, Klutz was the Allen County auditor, where she was named Auditor of the Year by the Indiana Auditors’ Association.
Holcomb praised Klutz for her service.
“As the first CPA to serve in the position, Tera has been a faithful fiscal steward with a keen focus on transparency and accountability, most notably by modernizing technology,” Holcomb said in a separate news release. “Throughout her tenure, Indiana has been recognized nationally for its responsible financial reporting.”
Contact Kaitlin Lange on X @kaitlin_lange or email her at [email protected].
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Header image: State Auditor Tera Klutz talks with State Affairs. (Credit: Kaitlin Lange)
New EPA rules would force Indiana to hasten its energy transition
Indiana is probably the type of state that the Environmental Protection Agency had in mind when it proposed a new set of rules that target fossil fuel-fired power plants.
Not only is the state still reliant on fossil fuels for most electricity — more than two-thirds is generated by coal (47%) and gas (29%), data show — Indiana has some of the worst air quality and is one of the most polluted states in the country. The primary focus of the new EPA rules, though, is an attempt to significantly reduce the amount of carbon dioxide released by those plants. Fossil fuel-fired power plants are responsible for about a quarter of all greenhouse gas emissions, according to the EPA, and for about a third of the nation’s carbon dioxide emissions that are heating the planet.
Yet while Indiana has been slow to adopt renewable energy sources, the pace of the state’s transition away from fossil fuels has been picking up steam in recent years.
But not fast enough for the EPA.
President Joe Biden’s aggressive climate agenda would require states like Indiana to hasten their energy transitions considerably. The draft power plant rules, released in May, would broadly require utility companies to cut their dependence on coal and gas, and to adopt emerging technologies that would enable the use of carbon storage and hydrogen.
Now Indiana government leaders and electric utility companies are raising concerns. They say the plans would force Indiana power plants to retire early, which could substantially increase the cost of electricity for Hoosiers while risking the reliability of the electric grid. And they say the technology cited by the EPA is not ready for widespread adoption.
“For carbon capture, while this is a technology that the state is invested in, it is not yet at the scale needed to accommodate all the utilities in the state,” Brian C. Rockensuess, commissioner of the Indiana Department of Environmental Management, told lawmakers during a committee meeting this month.
Environmental advocates, however, are characterizing the concerns as overblown. They point to two federal bills — the Inflation Reduction Act and the Bipartisan Infrastructure Law — that contain grants and incentives for power plants to transition away from coal and gas. And they say the power industry always raises concerns about any new regulations but always finds a way to comply.
“They are like the boy who cried wolf,” said David Doniger, a former EPA official and current senior strategic director at the nonprofit Natural Resources Defense Council. “If you look at the track record, they say this every time and then, if the regulations are in fact adopted, the compliance goes smoothly.”
Indiana agency head raises concerns
Rockensuess voiced his concerns about the new EPA rules to Indiana lawmakers during an Interim Study Committee on Energy, Utilities, and Telecommunications meeting this month.
He didn’t dive into the pros and cons of the environmental impacts; rather, he focused on the difficulty for policymakers and regulators in Indiana who will be tasked with enforcing the final rules adopted by the federal government.
Among the difficulties, he said, are requirements for some power plants to use hydrogen to generate electricity or rely on carbon capture and storage to reduce emissions. Both technologies, he said, are not ready for wide use, yet the federal government would require Indiana to explain how the state would implement the new federal rules within 24 months.
“Bottom line is they are asking for a lot in too short of a time,” he said. “Indiana and other states are being set up to run afoul of that timeframe from the start.”
Those concerns were echoed in a joint letter sent to the EPA by his department, the Indiana Utility Regulatory Commission and the Indiana Office of Utility Consumer Counselor.
The study committee also featured an out-of-state speaker who shared fiery testimony in opposition to the EPA proposal. By the end of the presentation, Rep. Matt Pierce, D-Bloomington, questioned whether the Republican leaders considered inviting anyone with a different viewpoint.
“I was just kind of curious as to whether the chairman attempted to invite testimony from anyone in support of the rules, such as the Clean Air Task Force or the Natural Resources Defense Council, people along those lines?” Piece asked.
Committee chair Sen. Eric Koch, R-Bedford, said that such viewpoints were already well-known because of the EPA’s plans, but he would consider Pierce’s request if lawmakers take up legislation on the matter when the legislative session begins in January.
Koch, who also leads the Senate utilities committee, later confirmed to State Affairs that he was unsure what actions the Indiana General Assembly might take in response to the federal rule, but he does not plan to file legislation this year.
The chair for the House utilities committee — Rep. Ed Soliday, R-Valparaiso — told State Affairs he did not yet know if he would file anything.
Environmental advocates push back
While they were not invited to speak at the public meeting, many environmental advocates in Indiana are supportive of the president’s efforts to curb carbon emissions.
“Probably what you didn’t hear in the testimony at the Statehouse was the cost of mitigating and addressing issues related to climate change. And you probably didn’t hear the effects of air pollution and how that contributes to asthma and other diseases,” said Sam Carpenter, executive director of the nonprofit Hoosier Environmental Council. “In the big picture, all those things need to be considered.”
The Biden administration estimates up to $85 billion in environmental and public health benefits over the next 20 years.
Indiana once relied almost exclusively on coal for electricity. And while the state continues to be a top-five consumer of coal for electricity, the major utility companies have started shifting away from coal in recent years. They’ve largely replaced that fuel source, though, not with renewables but with natural gas. That’s because gas is relatively affordable, and it easily enables utility companies to both meet the daily electricity demands but also rapidly ramp up production during cold snaps and heat waves.
Some utilities are seeking state approval to build new gas plants even now. Indiana customers will be on the hook for whatever is constructed now — such as a gas plant — even if those plants are rarely used or even shut down because of federal regulations. And then Hoosiers will also have to pay for whatever the utility companies build next.
“This continued investment into fossil fuels is going to be a stranded investment,” Carpenter said. “Down the road that’s not going to be paying off. That’s just a bad path to take.”
Future battles
If enacted, the new EPA rules are sure to draw litigation from Republican officials.
Attorney General Todd Rokita has already promised Indiana’s involvement: “Fortunately, the courts will almost certainly strike down these new EPA mandates — and on behalf of Hoosiers, I’ll do everything in my power to ensure that happens,” Rokita said in a statement about the proposed rules.
His comments align with those made by Indiana’s major utility companies. They accuse the EPA of overstepping — arguments that were at the center of a U.S. Supreme Court decision in 2021 that said the EPA lacked the authority under the Clean Air Act to regulate carbon emissions.
Others aren’t as confident as Rokita and utility companies.
Rockensuess, the state environmental management department commissioner, noted in his testimony that the EPA does have the authority because of new language contained in the Inflation Reduction Act, which Congress passed after the Supreme Court decision.
“It clarified and granted them the authority to regulate greenhouse gasses,” Rockensuess told lawmakers.
Rockensuess said he expected to see the final EPA rule by next May.
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Header image: A row of solar panels sits outside AES Indiana’s Harding Street power plant. (Credit: Ryan Martin)
Eric Doden says school district consolidation is ‘death knell’ for rural Indiana
Republican gubernatorial candidate Eric Doden is calling on the Indiana Chamber of Commerce to end its support for school district consolidation in rural Indiana.
In a letter sent today, the Fort Wayne businessman labeled the business group’s position as “damaging.”
“While the stated aims of this position are laudable, the message sent to our small towns and rural communities is damaging,” Doden wrote. “Proposing to do away with small public school districts through consolidation will be seen as a death knell for the millions of Hoosiers who live in small towns and rural communities.”
For years, the Indiana Chamber has advocated for fewer school districts across Indiana. A 2017 study commissioned through Ball State University identified worse educational outcomes for students in smaller districts in several categories, including scores for state standardized testing and the SAT, as well as the pass rates for Advanced Placement classes.
The Indiana Chamber re-upped its position last month when it released its long term economic development plan. Among the listed policies was a goal to “reduce by half the number of very small school districts with enrollments below 2,000 students to provide much stronger educational opportunities for rural students and communities.”
More than half of Indiana’s school districts have fewer than 2,000 students.
In a statement to State Affairs, Indiana Chamber President and CEO Kevin Brinegar said the state is providing a “two-tiered educational system” depending on income and ZIP code.
“Hoosier students should not be limited academically solely due to where they live. And that’s the case now in some of the smaller school districts where students are not afforded the opportunity to take a full array of STEM, Advanced Placement or college preparation courses,” Brinegar said in the statement. “The Chamber’s stance on smaller school district consolidation is rooted in wanting to lift up young Hoosiers in these rural communities, so they have a better chance at prosperity by properly preparing them for the state’s current and future job opportunities.”
The statement also contained a specific response to Doden’s criticism.
“We would be happy to sit down with Mr. Doden and go through the research and show him why we have adopted this position for the betterment of the academic and economic opportunities for our young people,” Brinegar said in the statement. “The status quo that Mr. Doden is championing has and will continue to leave small communities, schools and students behind. That’s not acceptable.”
But whereas the business group sees consolidation as one way to improve life in rural Indiana, Doden sees the opposite.
“Across our state it’s easy to see the remnants of a school consolidation push that began in the 1950s,” Doden wrote in his letter. “Too many towns that lost their local school to consolidation dried up and were virtually swept from the maps while other towns kept their schools and their identities. These communities had a better opportunity to survive.”
Doden also cited one of his policy proposals, which would redirect $100 million in state money toward small towns — in an effort to address declines in populations and quality of life.
“With local leadership and local control, we can revitalize our small towns and hometowns with a fraction of the investment we give away in the form of incentives,” Doden wrote.
Doden addressed the letter to Vanessa Green Sinders, who will replace Brinegar as the Indiana Chamber’s leader. Her tenure will begin in January, so she was unavailable to provide comment to State Affairs. Either way, the Indiana Chamber’s members are the ones who suggest policy positions for the board of directors to approve before each legislative session.
In addition to Doden, the crowded Republican field for governor includes U.S. Sen. Mike Braun, former Commerce Secretary Brad Chambers, Lt. Gov. Suzanne Crouch and former Attorney General Curtis Hill.
Jennifer McCormick, the former state superintendent of public education, has emerged as the leading Democratic candidate. Instead of school district consolidation, the state should reevaluate its expansion of school choice vouchers, McCormick has previously said.
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Header image: Eric Doden, 2024 Republican candidate for governor of Indiana (Credit: Eric Doden for Indiana Governor/Facebook)