It's cutting taxes, stupid! (tax reductions for economic growth) (Commentary) (Column)

• Author: Styring, William, III

Here's our public-opinion question for the month. Pick the answer that most closely matches your feelings. State government is

a). Too small and needs to get bigger? b). Is plenty big enough and should stay about the same size? c). Is too big and needs to go on a diet?

A lot of incorrigible right-wingers (me, for instance) would answer "c." Professors of sociology no doubt would gravitate toward "a." But many citizens who think of themselves as disgustingly moderate, reasonable people might go for "b." Don't take an ax to government and throw widows and orphans into the snow. But heck yes, there's no good reason for it to get bigger. Nice middle-of-the-road answer, right?

If you smell a trap here, you win the kewpie doll. Keeping state government the same size--answer "b"--is an enormously radical notion. Over the past 25 years we've behaved as if "a" were the correct answer. Inflation-adjusted spending in the schools has doubled. Medicaid spending has ballooned from 2 percent to 3.4 percent, sales taxes from 2 percent to 5 percent. Along the way, we figured out clever new ways to tax corporations.

But here's a dirty little secret. If state government could simply be held to the same size, some amazing things are possible. Indiana's economy and tax system produce about 2 1/2 percent "real growth" each year on average. Over the long haul, revenues grow about that much more than inflation. Some years more. Some years less. But over the business cycle it's about 2 1/2 percent. If government doesn't grow, that means spending is being held to the inflation rate plus population growth (and in Indiana, population growth is close to nothing).

Indiana's dirty little secret is that if we just decide government shouldn't grow, that 2 1/2 percent--about $160 million per year, each year--is available for other things, such as cutting taxes.

There's no voodoo...