Hoosiers endure decade-long hike in state, local tax burden
Ponder this sobering news as you scramble to pay your taxes by Tuesday’s deadline.
Hoosiers have paid an increasing percentage of their income on state and local taxes — more than $300 per person — at the same time their average pay is decreasing. And this happened despite several government-led tax-reform efforts.
According to a recent Tax Foundation study, Indiana taxpayers paid 9.5 percent of their incomes in state and local taxes in 2011 — an average tax burden of $3,385 on income of $35,592, per capita. That’s a 1.1 percentage point increase over a 10-year span, 2001 to 2011, covered by the study, amounting to a tax increase of $313 per person. Meanwhile, per-capita income for Hoosiers decreased $1,064 during that period.
“Total taxes paid increased, while income decreased,” said Liz Tate, an economist with the Washington, D.C.-based think tank. “This led to a higher tax burden as a share of income over that period.”
Indiana’s increasing tax burden means its ranking has steadily climbed from the 43rd-highest-taxed state in 2001 to the 22nd-highest-taxed state in 2011, the Tax Foundation says. The report is based on Census Bureau data until 2011.
The national average state and local tax burden was 9.8 percent with an average per-capita income of $42,473. New York, New Jersey and Connecticut had the highest state-local tax burdens as a share of income in the nation. Wyoming, Alaska and South Dakota had the lowest.
Among neighboring states, Hoosiers had a lower tax burden than Illinois, Ohio and Michigan, but paid more in taxes than Kentucky.
Indiana’s tax burden increased despite the General Assembly undertaking massive tax reforms in 2008, including capping property taxes at 1 percent of home values, 2 percent of other residential and agricultural property values and 3 percent of business property values. The legislature also required voter referendums for school and government construction projects to try to curb tax increases.
To make up for that lost revenue, however, Indiana raised the state sales taxes to 7 percent that year, still one of the highest sales tax rates in the nation.
Gov. Mike Pence has made tax cuts the centerpiece of his first two years in office.
“The Tax Foundation findings show that, while we have a competitive tax system, our overall tax burden is still too high,” said Kara Brooks, Pence’s spokeswoman. “That’s why Governor Pence has been pleased to sign over $600 million in annual tax relief into law in the past two sessions of the General Assembly.”
The data were collected before the Republican-led General Assembly passed one of the largest tax cuts in Indiana’s history in 2013, a $1.1 billion, multiyear giveback that included cuts in the corporate and financial institution tax rates and a repeal of the inheritance tax — as well as a 5 percent cut in the personal income tax.
The General Assembly voted this year to further reduce the corporate income tax and to give counties more options to cut business taxes, including exempting new business equipment from property taxes.
Luke Kenley, chairman of the Indiana Senate’s budget-writing Appropriations Committee and a leading voice for state and local tax reform, was surprised that the report indicated Hoosiers are paying more in taxes. Still, he said Indiana has a good mix of state and local taxes.
“I think it’s good for Indiana to be a moderate- to low-tax state,” the Noblesville Republican said.
“They (the Tax Foundation) have a lot of credibility, and I pay a lot of attention to them,” Kenley said. “But we make our own judgment calls about what’s best for Indiana. We’re in a good spot, and we need to keep working at it.”
However, Indiana Democrats have said many of those tax cuts over the past two years have come at the expense of local services, including funding for schools, social programs and roads. They also have noted that Hoosier incomes continue to trail the national average by about 9 percent. (The median household income for Indiana residents in 2013 was $48,393, the Census Bureau said, compared with the national average of $52,762.)
House Minority Leader Scott Pelath, D-Michigan City, said the legislature’s focus should be on helping the middle class better afford services, such as higher education, health care and workforce development training.
“This is the result of the clandestine but intentional tax polices of the Daniels and Pence administrations,” Pelath said of the climbing tax burden. “We have seen a gradual shift of the tax burden away from corporations and onto the backs of individuals, workers and consumers.”
The argument of taxes versus services will be debated for a long time, said Jerry Conover, director at the Indiana Business Research Center in the Kelley School of Business at Indiana University
“You get what you pay for when it comes to taxes,” Conover said. “It’s a two-edged sword: raise taxes and it hurts people’s chances to invest money in their businesses; lower taxes and you have a lower level of services and community assets.”
Ball State economist Michael Hicks said Indiana has done a good job of spreading out the tax burden among a variety of taxes that affect different taxpayers. Although the sales tax is notably high, he said, most of Indiana’s taxes are low to moderate compared with other states.
“Indiana does a good job of spreading the taxes out among different activities,” he said.
Counting only business taxes, the Tax Foundation said Indiana had the eighth-best state business tax climate in 2014, an improvement from 10th in 2013. The foundation noted that the corporate tax, in particular, is being phased down from a high of 8.5 percent in 2012 to a projected 4.9 percent in 2022.
While the governor signed into law a bill allowing individual counties to decide whether to eliminate the business personal property tax on new equipment, Kevin Brinegar, president of the Indiana Chamber of Commerce, said the chamber will continue to push for the elimination of the tax.
Still, Brinegar said, Indiana has a strong business environment, especially in light of the recent legislative tax efforts.
“We’ve made huge strides,” he said.
Call Star reporter Chris Sikich at (317) 444-6036. Follow him on Twitter: @ChrisSikich.
Climbing tax burden
Hoosiers have seen their state and local tax burden steadily increase from 2001 through 2011.
Year, taxes as percent of income, rank (1 is the highest tax burden), state and local tax burden, per capita income
• 2011; 9.5%; 22; $3,385; $35,592
• 2010; 9.8% 25 $3,411 $34,771
• 2009; 10.0%; 22; $3,575; $35,897
• 2008; 9.7%; 27; $3,638; $37,424
• 2007; 9.4%; 35; $3,581; $38,252
• 2006; 9.2%; 33; $3,482; $37,885
• 2005; 9.2%; 33; $3,438; $37,542
• 2004; 8.9%; 38; $3,291; $36,901
• 2003; 8.9%; 40; $3,196; $35,966
• 2002; 8.5%; 41; $3,053; $35,737
• 2001; 8.4%; 43; $3,072; $36,656
Source: Tax Foundation
Indiana’s tax ranking
Hoosiers have the 22nd-highest tax burden in the country. Here’s how Indiana stacks up among select states in 2011:
State, taxes as percent of income, rank (1 is the highest tax burden), state and local taxes, per capita income
• New York; 12.6%; 1; $6,622; $52,417
• Illinois; 10.2%; 13; $4,658; $45,664
• Ohio; 9.7% ;18; $3,687; $38,073
• • Michigan; 9.6%; 21; $3,505; $36,641
• Indiana; 9.5%; 22; $3,385; $35,592
• Kentucky; 9.5%; 23; $3,169; $33,435
• Wyoming; 6.9%; 50; $3,500; $50,805
Source: Tax Foundation