Don’t Raise Taxes on Low Income Hoosiers!

Don’t Raise Taxes on Low Income Hoosiers! Read the guest post 'Don’t Raise Taxes on Low Income Hoosiers!' on the Institute's Blog 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.