Elections and Taxes and Budgets. Oh My!
Focus Turns to November Elections
The midterm
elections season is becoming more focused on Election Day, November 2,
2010. Recently, President Obama announced a series of economic
initiatives that have some obvious political ramifications. The
president proposed increased infrastructure spending, an extension of
research and development tax credits, and changes to the tax code that
would make it easier for companies to purchase capital equipment.
Whether any of these initiatives could become law in the current
environment remains to be seen. There are a number of details
that would need to be worked out, not the least of which is how to pay
for any new spending or tax reductions. It is possible that the
president would push for taxing foreign-sourced income on U.S.
multinational corporations, although Republicans are not likely to
support such an initiative.
One area of
political debate on which many are focused is the fate of the Bush tax
cuts, which are set to expire at the end of this year. The Obama
administration may be supportive of a hybrid approach in which some tax
cuts are extended, but not those that benefit upper income tax
brackets. However, it appears unlikely that the Senate would go
along with such a proposal. With the political backdrop becoming
increasingly contentious, it is hard to imagine any tax-related
legislation being passed until after the midterm elections.
By making some
new economic proposals, it appears the president is attempting to shift
the debate from the elections being a referendum on the current party
in power to one that is more about choices between competing
ideas. While current polls suggest that the outlook is dire for
the Democrats, the elections are still almost two months away.
Indiana
Stateside,
electoral politics are shaping legislative caucus agendas and public
statements with respect to next year's budget writing session at the
Indiana State House. Republicans hoping to win control of the
narrowly divided Indiana House recently stated that their chief goal
during the 2011 legislative session is to make the state live within
its means. House Republicans also released a number of measures
aimed at protecting Hoosier taxpayers, promoting job creation and
expanding education opportunities. This proposal signals a balanced
budget with no broad tax increases.
Putting
Hoosiers back to work remains the top legislative priority for Indiana
House Democrats through a job creating tax credit designed to reward
small businesses that hire unemployed Hoosiers and a program to offer
low interest loans to help small businesses weather a tough
economy. Indiana House Democrats have also pledged not to raise
taxes, to reduce the size of government and continue ethics reforms
they championed during the 2010 legislative session.
It will be a
challenge for which ever party is in control
of the chamber to pass a new budget without raising some taxes or fees
since total tax revenues are slightly below the amount predicted in the
two-year state budget passed in June 2009. Despite encouraging
state revenue figures in August 2010, state lawmakers face serious
fiscal challenges heading into next year's budget-writing
session. Even if the most recent revenue forecast is achieved,
the state would end the 2010 calendar year $797 million below what
was expected in the June 2009 two-year budget. Targeted taxes
like those on cigarettes or gaming may still be on the table as the
fragile state of the national economy remains a threat to Indiana's
recovery.
Illinois
The political
climate in Illinois is changing this election cycle. It appears
the wind is at the backs of the Republicans for the first time in many
years. It appears Republicans could pick-up the following seats:
Governor, U.S. Senate, three Congressional Districts (11, 14 and 17)
and possibly the Illinois House.
Should this
hold true, the climate in the Illinois State Capitol will change
dramatically with the priority of balancing a budget and wiping a $13
billion deficit from the books. The focus for all the campaigns
is job creation and fiscal responsibility. If there is a new
governor elected or should the House change hands, the November veto
session and the last few days of the 96th General Assembly in January
2011 could bring a myriad of tax increases before the swearing in of
new officials. These are always the most volatile days of any
General Assembly and ones which needs to be monitored closely.
