Tax Bill To Assist Working Hoosier Families
Indianapolis — A bill to assist working Hoosier families by recoupling Indiana’s Earned Income Tax Credit (EITC) with the federal EITC moves to the conference committee phase.
The Indiana Catholic Conference (ICC), the Indiana bishops’ official representative for public policy matters in Indiana, supports the EITC legislation as a way to not only assist many working low to moderate income families, but the bill also incentivizes marriage and families.
Glenn Tebbe, ICC executive director, said, “We support the EITC legislation as a way to help working families make ends meet. Lower income wage earners pay a disproportional tax in relation to their income. The EITC helps offset that tax burden on working families. We support the removal of the marriage penalty, and the provision which allows families to count all of their children, not just two for tax purposes under the EITC.”
Lucinda Nord, public policy director for Indiana Association of United Way, said it is a tax credit for lower wage earners. “It gives those people an offset on their tax bill. In a state like Indiana with a flat income tax, and the second highest rate in sales tax in the US, low wage workers pay a disproportionate amount of sales the tax burden. The EITC is an offset that helps level the playing field on the tax rate and incentivizes work.”
In 1999, Indiana adopted a state EITC that was a simple calculation of the federal EITC. Eligibility is limited to working people with incomes of no higher than $14,590 for a single adult and $46,941 for a family with two or more children. The average state credit is less than $200 per family. Indiana is one of 15 states that taxes residents earning below the poverty line which is $23,550 for a family of four.
Nord explained that the federal government, as part of the stimulus package, increased the EITC to a straight 9 percent. In 2011, Indiana lawmakers decided to de-couple state from federal due to concerns it could cost the state too much money. The result of the de-coupling caused a reinsertion of marriage tax penalty, and it limited the number of children to two a family could claim for the EITC.
In June of 2014, Governor Mike Pence hosted a Tax Simplification and Competitiveness Conference which recommended the re-coupling of the state revenue code to the federal code.
In January of 2015, the United Way released a Rutgers University-Newark study which provided economic indicators for six states including Indiana. The report called ALICE, which stands for Asset Limited Income Constrained Employed, focused on men and women of all ages who work, but aren’t sure if they will make enough to provide basic necessities.
The report showed that 69 percent of jobs in Indiana do not pay a wage high enough for a family to pay basic living expenses. The report also showed that while 14 percent of Hoosiers are at the federal poverty level, 23 percent of working Hoosiers are above the poverty level but do not make enough money to provide basic living expenses.
Research conducted by the Center on Budget and Policy Priorities notes that the EITC raises the standard of living for low to moderate income working families, reduces poverty and encourages work. The report also found that the EITC not only helps children by improving their immediate well-being, but is associated with better health, more schooling, more hours worked and higher earnings for them as they become adults.
While the Senate Democrats outlined the EITC as one of their 2015 legislative priorities, there has been opposition. Senate Appropriations Committee member, Sen Brandt Hershman, R-Buck Creek, has raised concerns during panel discussions regarding potential fraud if the federal and state EITC are re-coupled. Sen. Luke Kenley, R-Noblesville, who chairs the Senate Appropriations Committee, has voiced general concerns of the re-coupling cost which is approximately $12-$15 million.
Regarding the fate of the EITC legislation this year, Nord said she was “cautiously hopeful” that it will pass. She said she has “appreciated the conversation” that has happened this year because it has provided discussion on current tax policy and its impact on low wage workers who pay a disproportionate share of the tax burden.
The Indiana General Assembly has two weeks to pass a two-year state biennium budget and conclude all legislative business prior to the April 29 adjournment deadline.
