The Indiana General Assembly should commemorate the 40th anniversary of the county income tax by streamlining the options and overhauling the distribution formula.
An Indiana Fiscal Policy Institute report last week addressed this issue. The think tank's report should be required reading for legislators.
Since the local option income tax was created in 1973, 91 counties have adopted one or more local income taxes.
Lake County, the lone holdout, last week approved borrowing $15 million because it's spending more than it's taking in. The variety of income tax options makes settling on an income tax to pay for essential government services more confusing than it needs to be.
The Indiana Fiscal Policy Institute recommends streamlining the local income tax options to make them more manageable. It is difficult for the public to understand the nuances between the various types of taxes. The bottom line, for taxpayers, is how much they'll pay, not the total for each tax.
"Property tax caps were meant to introduce more simplicity, transparency and consistency, and the conversation should be, 'Is there a way we can introduce that simplicity on (the local income tax) side as well?'" said Matt Nagle, of the Indiana University Public Policy Institute, which co-sponsored the report.
John Ketzenberger, president of the Indiana Fiscal Policy Institute, said the report was intended to start a statewide conversation on these taxes among taxpayers, local officials and state legislators. Hopefully, it will spur action as well.
The water has been muddied over the years. The economic development income tax, for example, no longer is limited to use for economic development. Some taxes fund property tax relief, and some don't.
The General Assembly should revisit the limits, distribution formulas and variety of these taxes. Do so carefully, to prevent a local government spending spree of the loss of property tax relief, and make sure obligations spelled out under enabling legislation enacted over the years are met.
Indiana's variety of local income taxes creates confusion. That confusing mess needs to be straightened out. It's time to streamline these tax options.
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