If you’re mailing a check to the Indiana Department of Revenue today, you might already have pondered the disconnect between how much you’re paying in state and local taxes and the tax-cut boasting you hear from state officials. It’s not your imagination: Hoosiers’ tax bill as a share of income grew from 8.4 percent to 9.5 percent over the past decade.
All of the tax cuts pushed by the Indiana General Assembly can’t keep up with residents’ stagnant incomes. A new study by the Tax Foundation places Indiana 22nd for the highest state and local tax burden based on 2011 Census data. The state was ranked 43rd in 2001.
The last 10 years have seen monumental changes in state tax policy, particularly in business and property taxes. The business-friendly Tax Foundation, in another recent report, calls Indiana’s tax reforms impressive.
This year, policymakers have continued the Hoosier trend toward better tax laws, as the governor signed a major tax package on March 25 that will improve the state’s business tax climate further, writes economist Scott Drenkard.
Gov. Mike Pence’s office acknowledged the disconnect between the two reports.
The Tax Foundation findings show that, while we have a competitive tax system, our overall tax burden is still too high, Kara Brooks, the governor’s spokeswoman, told the Indianapolis Star. That’s why Gov. Pence has been pleased to sign over $600 million in annual tax relief into law in the past two sessions of the General Assembly.
That relief wouldn’t be reflected in the tax burden report, but an automatic taxpayer refund – triggered by a budget surplus – amounted to a $111 tax credit for individual filers in 2013. Legislators tightened requirements for the automatic refund, so it’s not available this year.
Automatic refunds won’t solve the dilemma posed by Hoosiers’ declining income, even if they return. The state ranked 41st in per-capita income in 2011, at $35,592. That’s fallen from a peak of $38,252 in 2007.
At some point, state policymakers must consider whether the rush to cut taxes isn’t having a perverse effect on quality of life in Indiana. As the General Assembly has cut taxes at the state level or restricted ability to collect them at the local level, city and county officials have been forced to eliminate services or raise taxes locally. Those decisions inevitably affect the ability to attract new and better-paying jobs to a community. Employers looking to attract talented, well-paid employees know that they must offer an environment with more than low taxes.
Until lawmakers get the right mix, Indiana’s tax burden might well continue to grow.