Who Pays and is it FAIR?
AFL-CIO policy has historically called for tax fairness based on the ability to pay and opposed regressive reform proposals. True tax reform must take into account historical trends of those who share the total tax burden. When there is one segment shouldering an unequal tax burden, then reform must fairly and equitably adjust that burden.
We know that Indiana is a low tax state. But, the legacy of tax shifts and an unequal tax burden continue to demonstrate that tax fairness doesn't exist in Indiana. The politicians calling for Inventory tax cuts regardless of the size of the cuts are compounding that continuing shift of more tax burden onto the individual.
No one would tolerate a tax system that discriminates on the basis of gender or race, so why do we allow it based on income size?
There is growing income inequality in our communities and Indiana's regressive tax system makes this problem worse. Over the last decade, the average income of middle-class Indiana families increased only 2% or $870 and the income gap between them and the households in the top quintile increased 31.4%. The middle classes share of the total income dropped over the same period from 18.3% to 16%. While it may be true that a rising tide lifts all boats, in Indiana the bigger your boat is the bigger your gain.
The problem of tax inequalities among individuals is compounded by the fact that businesses are paying a decreasing percentage of state tax revenues.
The share of income tax revenue paid by individuals rose from 24 percent in 1977 to approximately 36 percent in 1997. The share of corporate income taxes paid in Indiana declined over the same period from 19 percent to just over 10 percent.
Like income taxes, the share of property taxes paid by businesses also has declined. In 1977, residential and individual taxpayers paid 30 percent of the total property tax bill. By 1997, this share had risen to 39 percent. [Data on income and property taxes drawn from Indiana Legislative Services Agency, Handbook of Taxes, Revenues and Appropriations, various years.]
Our tax system, already weighted in favor of business, provides additional relief in the form of economic development subsidies. Although stagnant wage growth and modest job growth in recent years raise accountability questions, direct business subsidies continue to rise. Tax abatements in economic revitalization areas and enterprise zones were worth $72.7 million in 1995, accounting for 7.7 percent of business personal property taxes levied. Abatements for real property amounted to $44.9 million, about four percent of tax levies for real property. The state also provided business training subsidies worth $13 million in 1998.
Economic competitiveness is the buzzword for many of Indiana's tax reduction/reform proposals (e.g., the permanent elimination of the local property tax on business inventories). The translation means lower taxes for business higher taxes for individuals and households in their capacities as consumers or income recipients.
The Senate Republican proposal to eliminate the inventory tax is a windfall for only a few corporations. The bottom 278,518, (99.5% of inventory taxpayers) will see an average savings of $230 in FY 2001. The top ½ of 1% will save an average of $43,185. The biggest savings are reserved for those at the very top, the 6/100 of 1% with average savings of $176,796. The House Democrat plan eliminates the windfall but still leaves open the question as to why an inventory tax reduction is a high priority in the first place.
Whichever way you cut it, the status quo, geared to the needs of large corporations and the super-rich, will remain undisturbed. As a practical matter, no one in the political arena is speaking effectively for working people on the issue of tax fairness. The working class remains an undiscovered lost continent afloat in corporate muck sanitized with the word “democracy”. Ancient Greeks invented the word. Look it up in the dictionary and you will find two words (one meaning “people”, the other meaning “to rule”), resulting in the word democratia which literally means “ the people rule”. Democracy doesn't exist In Indiana. We are ruled by “oligarchy” (rule by the few) and “plutocracy” (rule by the rich). The only way we will ever change this tax inequity is when the day arrives that “the people” decide en mass to speak out and are willing to turn the political process upside down. That day will come only when Indiana's working class citizens accept responsibility to make it happen – through their unions, churches and other civic and social groups.
An ever-increasing tax burden is the price working families are paying for a friendly business climate. The policy debate in Indiana serves as a reminder that tax laws are made on the basis of political power, not fairness or economic efficiency. Without a consideration of who pays taxes, proposed legislation represents little more than business as usual in Indiana.
The Indiana AFL-CIO calls upon all Legislators and Citizens to understand that when the state needed money on two different occasions in the 1980's, they increased taxes on individuals. Now that the state has a surplus they should return it to individuals. In 1980, the total income tax revenue paid by both individuals and corporations equaled approximately 20%. By 1996, the individual income tax portion of total tax revenue rose to 35%, while the corporation's portion fell to 11%. When you look at residential property taxes from 1987 to the present, we see the same trend. In 1987, individual property taxes made up 30.5% of the total property tax revenue. By 1995 the individuals share of total property tax revenue rose to 39.2%.
The relevant policy question is: What is to be gained by moving to a new tax system that shifts more of the burden to individuals and is it worth the political capital and transition cost that accompany a major UNFAIR tax restructuring ? |
