Daniels Talks Tax Hike Again

It was bad enough that Gov. Daniels pushed for a tax increase last year, but he's already began talk of making a similar push next year. Daniels tells the Bloomington Herald-Times that he will once again urge the legislature to increase the cigarette tax to enhance the state's fiscal health and pursue education initiatives, such as full-day kindergarten. Daniels tells the Herald-Times:

“It’s my intention to go at this in a fairly large way,” he said. “The starting point is to bring our cigarette tax to the level of other states. Our cigarette tax is the lowest in the Midwest by far.”

Indiana’s tax is now 55.5 cents per pack.When announcing earlier this month that state government ended the fiscal year with a surplus, he said it took any need for tax increases off the table. But he amended that after a reporter’s question, saying he would be open to higher cigarette taxes.

He said if he did propose that, it would be made solely with hopes of reducing smoking. He made the same claim in proposing increases of 25 cents per pack last session. But it failed to clear an initial House committee controlled by fellow Republicans and vanished as an issue.

Here's why Daniels want to increase the cigarette tax. The state of Indiana did not end this past fiscal year with a balanced budget contrary to his claim. If you remove the tax amnesty and other budget gimmicks the administration performed to make it appear the state ended the budget cycle with a surplus, there's still a sizeable hole in the budget to be filled. Ending the current fiscal year with a balanced budget is going to be more of a challenge because he's not going to have an amnesty program to boost state revenues by $200 plus million. Presumably, Daniels doesn't want to ask his agency heads to squeeze out more savings from their budgets.

Daniels is correct that Indiana's cigarette tax is lower than most surrounding states. But 55 cents a pack is still a pretty steep tax if you're a smoker, which I am not. If by some stroke of luck Daniels was successful in convincing the legislature to raise taxes on cigarettes by 25 cents next year, the tax increase would not take effect until July 1--after the end of the current fiscal year. However, cigarette tax collections would surge near the end of the year as smokers stock up on cigarettes before the tax increase takes effect, thereby helping to fill the state's budget hole.

Republican legislators like Luke Kenley and Jeff Espich seem to think a cigarette tax is unlikely unless the revenues are tied to health care initiatives. For me it's just a matter of the state living within its means. State revenues are in fact growing, allowing the state's budget to grow. It's just not big enough growth to satisfy those with the urge to spend more, which apparently includes Gov. Daniels. So much for the nickname President Bush gave him--"The Blade". The cigarette tax is also one that falls unevenly on middle and lower-income taxpayers, who are already being crushed by skyrocketing gas prices. Let's hope this idea is dead on arrival just like this proposal was met this past year.