With statewide elections on the doorstep, some 2024 candidates are playing on a familiar ploy in calling for a reduction or an end to Indiana’s income tax.
The most popular idea floated by those who are campaigning on the proposal, including current lieutenant governor and gubernatorial hopeful Suzanne Crouch, is to replace a sizable portion of the tax income revenue with an increase in sales tax.
It’s a bad idea, one that would hurt the poorest of Hoosiers, a think tank told state lawmakers in October.
Analysts with the Institute on Taxation and Economic Policy predict that axing the state income tax and increasing the sales tax would cost low-income Hoosiers an additional $62 annually while handing wealthy Hoosiers a cut of $30,000, the Indiana Capital Chronicle reported Oct. 23.
Certainly political ideals have to be recognized in the debate. The Institute on Taxation and Economic Policy is considered liberal. Conservative think tanks have called on state lawmakers to end or reduce the income tax. The State and Local Tax Review Task Force has been formed to consider the options.
A fact that’s indisputable is that Indiana has enjoyed budget surpluses, and ended the 2023 fiscal year with $2.9 billion in reserves. Last year, many Indiana taxpayers received a refund check due to the extra collections.
The state’s tax collections aren’t the problem.
There’s simply no reason for people to pay more taxes for purchases based on an attempt to satisfy higher-earning Hoosiers. While at its most basic level a sales tax charges the same percentage to each buyer, it’s far from a level playing field.
A $7 tax on a $100 purchase for a Hoosier making $30,000 annually is much more impactful to that individual than the same amount charged to a Hoosier earning $100,000 a year. Increasing the sales tax percentage at a time when inflation has driven up costs of groceries, gasoline and goods would lead to further economic turmoil for those hurting the most. The state could find itself in need of additional revenue to subsidize costs for impoverished Hoosiers who would see their limited resources stretched even further with a sales tax hike.
Lawmakers are right in reviewing Indiana’s tax system, both at the local and state levels. We should never allow complacency to keep us from examining the costs residents have to pay.
But income taxes are a more equitable way to finance state services. If lawmakers are seriously considering ending or reducing income taxes, they need to find a better alternative than asking poor people to pay more.