Thursday, March 7, 2013

Indianapolis Residents Need Pence Tax Cut for Relief from Ever Increasing Local Taxes and Fees; Policy Analyst Andrea Neal Makes Case for Tax Cut for Economic Growth

Policy analyst Andrea Neal pens another thoughtful editorial, this time in support of Gov. Mike Pence's proposed 10% state income tax cut.  More on that below.  While I wholeheartedly endorse her comments which focus on the tax cut as a tool for economic growth, I would offer another one - the need for local tax relief, in particular for Indianapolis residents who are getting killed by increased taxes, fees and utility rates.

If mass transit advocates have their way, Indianapolis' local income tax will rise to 1.92%, a 92% rise from 2007 level of 1%.  In addition to tax on income, virtually every local tax and fee has been increased during the past several years, many times dramatically so.  Parking meter rates are up 100% over just the last two years.  Local car rental taxes are up 50% while admissions taxes on tickets are up 67%.  A couple years ago, the Indianapolis City-County Council passed an ordinance jacking up fees for virtually every business fee charged by local government.   Now, there is a move afoot to repeal the local homestead tax exemption in order to raise property taxes further.  Efforts to raise the 2% food and beverage tax and alcohol tax were dropped...fortunately.

Then you have the indirect taxes.  A couple years ago, the City "sold" the city's sewer and water utilities to Citizens Energy to create a pile of money used for things like paving streets.  As Citizens' Energy, like the City, is owned by the public, the sale was essentially equivalent to a husband selling a used car to his wife then bragging about all the cash he received in the deal, which money he promptly spent.  The wife though had to finance the purchase and now that payments on the loan are coming due.  Just last month, Citizens Energy filed with the Indiana Utility Regulatory Commission to raise sewer rates by 50% (about $14 per month on average)) and water rates by 10%.   People who have both sewer and water will see an average increase of 28% in their monthly bills.

The Indianapolis tax and fee increases, and increased utility bills, dwarf  the Pence proposed 10% tax cut.  But at least the Pence proposal would provide some relief, some cash back in our pockets to pay these never-ending increases coming at the hands of Indianapolis local government.

Now on to the Neal editorial published below:
Popular perception to the contrary, Indiana is not a low-tax state. When you add up all the different taxes — property, sales and income assessed by federal, state or local government — we rank right in the middle.

Twenty-three states have lower overall tax loads than Indiana’s. A few more may join them if they follow through with plans to reform their tax systems.

This is the best argument for Gov. Mike Pence’s tax cut proposal, an idea that has yet to make it into the budget bill and has received lukewarm support from lawmakers. Pence has proposed reducing the state’s income tax from 3.4 percent to 3.06 percent, saving Hoosiers about $380 million a year.

Republicans, who hold supermajorities in both houses, should be jumping at the chance. When a state can afford a tax cut, and Indiana can, it’s smart to pass one.
That’s exactly what other states are trying to do as they continue to struggle their way out of this recession. Since January, Govs. Bobby Jindal of Louisiana, Dave Heineman of Nebraska and Sam Brownback of Kansas have called for their states to end the state income tax altogether and replace it with sales taxes. All three share the view that low taxes are key to job creation. The North Carolina legislature is considering repeal of personal and corporate income taxes.

If these states are successful, “they could provide the momentum for a nationwide trend,” said one analyst.

The debate in North Carolina, where the unemployment rate is 9.4 percent, has been especially instructive. A study by the John W. Pope Civitas Institute estimates that state would have at least 217,000 more jobs without the income tax.
The study compared growth rates of states based on corporate and individual income taxes and found “a large and negative impact on economic growth” in the high tax states. The study also found that states without a personal income tax have experienced higher average annual growth since 1992.
The Civitas research echoes a 2008 study of the economic effects of state income taxes, by economists Barry Poulson and Jules Kaplan, confirming “evidence of a negative effect of taxes on various measures of state economic performance.”

Critics argue that the North Carolina plan is regressive because consumption and sales taxes, which would be increased to replace the income tax revenue, disproportionately hurt the poor. The Civitas study suggests that employment and income growth that accompany income tax repeal are of far greater benefit to low-income households than lower sales taxes.

In Indiana, the sales tax is already high at 7 percent, so getting rid of the income tax right now is not realistic. But Pence’s plan is a move in the right direction. According to the Tax Foundation, it would make Indiana’s income tax rate “the lowest in the country among those states that levy an individual income tax.”

Senate President David Long says Pence’s idea is still alive and likely to make its way into legislation once updated revenue forecasts come out. House Speaker Brian Bosma appears less receptive. In a recent letter to Republican county chairmen, Bosma indicated a preference for moving up the timetable to phase out the inheritance tax. He noted that Indiana’s income tax rate is already among the lowest.

Bosma’s letter to county chairmen was highly unusual for taking on the governor so early in his administration and appealing directly to the Republican political base. That’s where the debate over tax cuts may play out in the short term. In the March 1 Fort Wayne Journal Gazette, Allen County GOP Chairman Steve Shine said he backed the governor, noting, “Many other states are moving in that direction, and we don’t want to be lagging behind.”

That’s what lawmakers should be concerned about. Our unemployment rate is 8.3 percent, which is not much better than North Carolina’s. We don’t want to lose jobs to states that are more aggressive in creating a low-tax atmosphere. Remember: Indiana is not a low-tax state. We’re smack dab in the middle.

Neal is adjunct scholar with the Indiana Policy Review Foundation. Contact her at


Unigov said...

IMO the classier move would be to increase the standard deduction to federal levels.

Pete Boggs said...

Party of smaller government?

Nicolas Martin said...

A 2010 study found that Indiana had the 20th highest tax burden among the 50 states, and it is been nothing but up since then.

Nicolas Martin said...

Oh, and an article about that 2010 study.

Pete Boggs said...

Event & meeting planners do pay attention to the cost of governments. By one account the NFL's highest paid player is actually the 2nd highest paid due to his state's tax burden.

Jon said...

Then there is the federal tax burden,follow the link to see Charley's Reese last piece for the Orlando Sentinel.