Morton Marcus
Hoosiers are talking about eliminating our state personal income tax. Why? There are many reasons and numerous options available.
Perhaps to relieve us of the burden imposed by figuring out our tax liability. The booklet provided by our Department of Revenue (DoR) has a 57 page manual of instructions which is not easy to read. Hoosier reading skills may be deficient for the purpose of completing the necessary form IT-40.
It could be our Indiana Economic Development Corporation (IEDC) has set priorities for Indiana’s economic development. Tax preparation is not one of the already-sanctified business segments. Eliminate the income tax and the quasi-computer-literate folks at these firms will be taken up by labor-hungry firms in approved STEM segments.
Homogenous Hoosiers we are not. James and Jimmy each has an income of $100,000 a year. James gives $200 to an Indiana college because he went there years ago. Jimmy gives $200 to his local library because he goes there every week. James gets a $100 credit against his tax liability and Jimmy get zero. Libraries don’t have lobbyists as good as those from higher education.
James gets an exemption reducing his income by $1,000 because he is over 65; Jimmy is still a youngster at age 63 and gets zero.
And now the big balloon…old James’s gets a deduction of income by $23,450 because of his monthly Social Security payments and young Jimmy gets zero. Do older people get better treatment from Indiana because they are known to vote more than younger people? Or is it the compassion of our Legislature?
Let’s add this up: James gets reductions in income of $24,450 leaving him with taxable income of $75,550. At the current 3.15% Indiana income tax rate, he owes $2,380 to the state, but deduct that $100 tax credit and he is obligated for $2,280.
Jimmy, because of age discrimination, gets zero off his income and no credits off his taxes because he donates to the public library. Jimmy owes the state $3,150 or 38% more than does James.
Yes, it’s a flat and fair tax, if you are in a group favored by the Indiana General Assembly.
Currently, only seven states have no personal income tax. They range from Florida to Alaska and Tennessee to Nevada. Eleven states, including Indiana, have “flat” taxes (a single bracket).
The remaining 32 states and the District of Columbia have rates for successive income brackets that increase with income levels. Some states adjust these brackets for inflation.
A few states tax only dividends and interest, others tax only capital gains. South Carolina has its lowest bracket at zero; its highest bracket is 6.5%. California ranges from a low 1% bracket to a high at 13.3%.
Should Indiana exempt all income from taxation? Many options require exploration and discussion, not glib election soundbites.
Mr. Marcus is an economist. Reach him at [email protected]. Follow him and John Guy on Who Gets What? wherever podcasts are available or at mortonjohn.libsyn.com.
