Indianas Tax Restructuring Experience 2001 2002

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Indianas Tax Restructuring Experience 2001
- 2002 September 13, 2004 by William
J. Sheldrake, President Policy Analytics, LLC
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Discussion Outline

• The Motivation for Tax Restructuring in Indiana.
• How Did Indiana Compare with Other States?
• Tax Restructuring Process and Proposal
• The Final Package
• The Winners and Losers

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The Motivation for Tax Restructuring in Indiana
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Tax Shifts by Property Class under Market Value
Assessment Change from Current

• Ag Res Bsns
  Util
• Average 0.0 32.7 -19.9 -34.1
• Maximum 30.5 82.4 -4.3 -5.8
• Minimum -23.1 7.2 -33.1 -51.4

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How Did Indiana Compare with Other States
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9.8
7.75
8.5
8.25
7.9
7.3
6.9
2.0
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Indiana Taxes

• Taxes on Individuals and Families were low
• lowest percent of income in 6-state region
• Taxes on businesses were relatively high
• but differences among 5-state region are small
• Overall, Indiana is a low tax state
• State and local govts collect 12 less than if
  national average tax rates were used

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Higher is Better!
12.6
12.3
12.2
12.1
11.9
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The Tax Restructuring Process and Initial
Proposal
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Developing the Proposal

• Process initiated by Indianas Lt. Governor
• Proposal developed behind closed doors using
  experts
• Development process generated speculation,
  interest and controversy
• Development process took 4.5 months

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Indianas 21st Century Tax Plan -- Proposed
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Indianas 21st Century Tax Plan -- Proposed
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Comparison of Tax Shifts under MV Assessment and
21st Century Tax Plan

• Tax Shifts with Shelter Allowance and Change in
  Personal Property Rule, Change from Current to
  21st Century Tax Plan
• Statewide Average
• Agric Resid Busns Util
• -9.1 0.0 -31.1 -28.2
• Tax Shifts with no Shelter Allowance or Change in
  Personal Property Rule, Change from Current to MV
  Assessment
• Statewide Average
• Agric Resid Busns Util
• -0.0 32.7 -19.9 -34.1

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The Final Package
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Tax Restructuring Big Picture Changes

• Lowered Reliance on Property Taxes
• Removed Business Tax Impediments
• Raised Consumption Taxes
• Provided Additional Revenue for Budget Purposes
• Provided Equity for Low Income Taxpayers

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HEA 1001-2002ss FISCAL IMPACT ESTIMATES
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HEA 1001-2002ss FISCAL IMPACT ESTIMATES
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HEA 1001-2002ss FISCAL IMPACT ESTIMATES
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Winners and Losers
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Business Taxes Did IN Improve?

• Inventory Tax -- effectively gone
• Corporate Gross Income Tax Gone except for
  utilities
• Corporate Net Income tax rate increased to 8.5,
  IN ranks 15th
• Property tax burden on business assets reduced

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Taxes on Individuals Was it a Good Deal?

• Impact of market-value reassessment mitigated
• Stronger budgetary support
• Sales tax rate to 6
• Cigarette tax rate to 55.5 cents
• Improved equity for low income families on income
  tax -- EITC

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Taxes on Individuals The Specifics

• Sales tax increase -- 203 on 4 person household
  at 50k
• Cigarette tax increase -- 438 increase on
  household with 2 heavy smokers
• Gas tax increase -- 38
• Property tax change (14)
• Net/Total tax change HH of 4 persons and 50k
  -- 248 or (45)

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Property Tax Shifts by Family Income and Size
under HEA 1001
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To contact Bill Sheldrake or Policy Analytics,
the email address iswsheldrake_at_policyanalytics-L
LC.com