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Tuesday, May 15, 2018

Don’t Raise Taxes on Low Income Hoosiers!

Indiana Institute for Working Families Banner
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.

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