Hoosiers prefer potholes to taxes.

• Author: Smith, James C.

One of the fundamental operating principles in the market economy is that in the long run, you get what you pay for. Better products command higher prices. Lower prices buy goods of lesser quality.

The same principle applies to things bought with state and local tax dollars. And here is where Indiana comes in next to last. Of all fifty states, Indiana had the second lowest level of state and local taxes on a per capita basis.

In the year 2000, the latest available data from the U.S. Census Bureau, Indiana's state and local tax revenues amounted to $5,381 per person in the state population. That placed Indiana forty-ninth out of the fifty states (see Figure 1).

[FIGURE 1 OMITTED]

Arkansas slipped below Indiana, coming in last with a figure of $5,175. The highest revenue per capita was $16,787 in Alaska, thanks to the oil well revenue. Next came Wyoming at $14,231, New York at $9,955, and in fourth place Oregon at $8,373. All of Indiana's northern Midwest neighbors--Illinois, Minnesota, Michigan, Ohio, and Wisconsin--scored in the top twenty-five.

Now before celebrating the "low tax burden" in Indiana, take a drive on an Indiana highway (be sure to steer around the potholes), or review the rankings of test scores in Hoosier high schools.

It boils down to market economics. State and local tax collections are not dollars that just disappear. They get spent on the citizens of Indiana. Almost 40 percent of state and local tax expenditures in Indiana go toward education. Another 10 percent of the total is spent on roads. The main things government spends the rest of its tax dollars on are hospitals and health care, police and fire protection, and other social services. A few dollars for sewers, parks, and prisons are in there too.

So take the full economic effect into account when looking at Hoosier taxes. Indiana is a low-tax state. And that means it is a low services state.

Education and Other Services

Indiana's total expenditures per capita for elementary and secondary education fall only slightly below the midpoint for all fifty states. Much of Indiana's education funding, however, comes from fees and charges generated within the educational system. In particular, Indiana University and Purdue University attract thousands of students from out of state, and the fees paid by those students help support the state's education system in general.

Apart from the fees that get collected and then plowed back into the education system, how has Indiana...