April 24, 2015

Tax bill to assist working families moves to conference committee phase

A view of the Indiana Statehouse in Indianapolis. (File photo by Natalie Hoefer)

A view of the Indiana Statehouse in Indianapolis. (File photo by Natalie Hoefer)

By Brigid Curtis Ayer

A bill to assist working families by recoupling Indiana’s Earned Income Tax Credit (EITC) with the federal EITC has moved to the conference committee phase.

The Indiana Catholic Conference (ICC), the state bishops’ 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 to incentivize marriage and families.

Glenn Tebbe, executive director for the ICC, 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 the Indiana Association of United Way, said, “The EITC is a tax credit for people who work that are lower wage earners. It was originally a Republican idea where Congress wanted to reward work by recognizing that some jobs don’t pay a lot. It gives those people an offset on their tax bill.

“In a state like Indiana that has a flat income tax, and the second highest rate in sales tax in the U.S., low wage workers pay a disproportionate amount of the sales tax burden,” she continued. “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 passed by Congress in 2009, increased the EITC to nine percent. In 2011, Indiana lawmakers decided to decouple the state from the federal rate due to concerns it could cost the state too much money. The result of the decoupling caused a reinsertion of a marriage tax penalty, and it limited the number of children a family could claim for the EITC to two. According to Nord, the decoupling also created complications for the Indiana Department of Revenue, tax software problems, and added 13 pages to the Indiana income tax form.

In an effort to address some of these problems last June, Gov. Mike Pence hosted a tax simplification and competitiveness conference which recommended the recoupling of the state revenue code to the federal code.

In January, the United Way released a study they commissioned Rutgers University in Newark, N.J., to conduct which provided economic indicators for six states in the U.S., including Indiana. The report, called ALICE, which stands for Asset Limited Income Constrained Employed, studies people of all ages who work but aren’t sure if they will make enough to provide basic necessities.

The ALICE report showed that 69 percent of jobs in Indiana do not pay a wage high enough for a family to afford basic living expenses. The report also showed that while 14 percent of Indiana residents 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 Washington, D.C.-based 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 young people as they become adults.

While Senate Democrats outlined the EITC as one of their 2015 legislative priorities, there has been opposition. Sen. Brandt Hershman, R-Buck Creek, a member of the Senate appropriations committee, raised concerns during panel discussions regarding potential fraud if the federal and state EITC are recoupled.

Sen. Luke Kenley, R-Noblesville, who chairs the Senate appropriations committee, voiced general concerns of the recoupling 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 added 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 budget and conclude all legislative business prior to the April 29 adjournment deadline.
 

(For more information about the Indiana Catholic Conference, its Indiana Catholic Action Network and the bills it is following in the Indiana General Assembly this year, log on to www.indianacc.org. Brigid Curtis Ayer is a correspondent for The Criterion.)

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