Don’t Raise Taxes on Low Income Hoosiers!
By David Sklar
Assistant Director, Indianapolis Jewish Community Relations Council
and Chair, Indiana Coalition for Human Services Public Policy Committee
The General Assembly is about to green-light a measure that will cut
credits and raise taxes on low income working families by $5 million
by 2027, but it doesn’t have to be that way. The Earned Income
Tax Credit (EITC) is a widely utilized, and extremely successful,
tax benefit for low-income individuals that was originally created
in the 1970’s and then expanded during President Ronald Reagan’s
tax reform efforts of the late 1980’s. In Indiana, working families
with children that have annual incomes below about $40,320 to
$54,884 (depending on marital status and the number of
dependent children) are eligible for both a federal and state EITC.
The state credit is simply the amount equal to 9% of their
federal credit. That percentage is set statutorily by the General
Assembly, and while the state credit is a percentage of the federal
credit, the credits themselves are not officially coupled
(this is important and you’ll see why below).
The reason the EITC is so successful is that it is fully refundable.
This means that the credit, which incentivizes work, can wipe out a
family’s tax liability, and if any credit remains will be provided
to the taxpayer in the form of a tax return. This extra money in a family’s
pocket is often used for emergency expenditures, school
supplies, household needs, etc., which can be the difference
between making it and falling off a fiscal cliff for
low-income Hoosiers. Nearly one hundred percent of the dollars
refunded to eligible families are pumped back into our local economy,
and the program itself has been supported by leaders of both parties
including President Obama and Speaker Paul Ryan who together
supported an expansion of the program as part of our economic
recovery from the Great Recession.
Unfortunately, Hoosiers who use the program are on the verge of
seeing a huge tax increase with the recent passage of the federal
tax bill, combined with the passage of House Bill 1316 during the
special session of the General Assembly this week. Tucked into the
federal legislation was a new way of calculating cost of living
adjustments for the federal EITC. This new method, called Chained CPI,
will constrain these adjustments so that they grow at a far slower rate
than normal inflation. Among the various provisions of HB 1316,
which was drafted in large part to protect some of Indiana’s biggest and
most important companies from seeing large increases in their state
tax liabilities as we reconcile our tax code with the federal legislation
passed by Congress earlier this year, is a provision that will require
Indiana to coincide with the use of Chained CPI. The end result of
both the federal and state legislation will be a large tax increase
on low income Hoosiers who claim the EITC. The Institute on
Taxation and Economic Policy (ITEP) projects that in 2019 recipients
will lose $12 million in federal EITC and $700,000 in state
EITC returns. The burden on Hoosiers continues to grow exponentially
and by 2027 they are projected to lose at least $86 million federally
and $5 million more from the state EITC. Although the state and
federal governments view any EITC expenditures not received by
taxpayers as savings, make no mistake, it is a tax increase on
low income working Hoosiers, and a big one at that. $91 million big.
But there are other options that Indiana isn’t considering. Because
Indiana’s credit is not officially coupled with the federal credit, as
mentioned previously, we do not have to utilize this new
method of calculation for the State’s EITC. Federally, low-income
working Hoosiers are already projected to lose tens of
millions of dollars. There is little we can do about that unless we
can convince Congress to amend or repeal its most recent
tax legislation. But, we can do something locally with regards to the
state EITC. Another $5 million out of the pockets of low-income
working Hoosiers, and local economies, is real money that cannot
be ignored. Unfortunately we at the Indiana Coalition for Human
Services were not able to convince lawmakers to remove this provision
from HB 1316, but it is our hope that we can work with them
over the summer and fall to find a solution to this problem, just as
Indiana’s largest employers were able to find solutions to their tax
liability problems in this legislation. We believe there are a
number of options that are worthy of consideration, and we look
forward to the opportunity to make our case.
Want to support low-income working Hoosiers? Consider joining ICHS or making a donation to IIWF. | 
