Last modified: Monday, November 24, 2003
IU report: Indiana more dependent on property and individual income taxes than other states
Indiana is more dependent on property and individual income taxes than other parts of the country, and it uses charges and fees more often to fund services than other states, according to a report from Indiana University's Kelley School of Business in Bloomington to be published in an upcoming issue of INContext.
In the same issue, another article reports there are more than 2,100 millionaires in Indiana and that the greatest concentration of Hoosiers reporting gross incomes of more than $1 million resides in the Indianapolis metro area.
INContext is published by the school's Indiana Business Research Center (IBRC) in partnership with the Indiana Department of Commerce.
In his article, "Taxing Hoosiers," IBRC Director Emeritus Morton Marcus notes that more than four-fifths of state revenue comes from within the state. Marcus reviewed 2000 data from the Census Bureau and the Rockefeller Institute and found that Indiana derived 82.6 percent of its state and local revenues from its own sources and 17.4 percent from the federal government.
By comparison, other states on average derive 81.1 percent of revenue from within their boundaries and 18.9 percent from federal sources.
"Indiana has fewer federally supported activities," Marcus said in explaining the difference. "We do not have as many miles of road as geographically large states. We have fewer military bases and no Indian reservations."
Of revenue Indiana derives from its own sources, 66.6 percent comes from taxes, compared to 69.8 percent nationally. But when one looks more closely at the kind of taxes being used, it becomes clear that Indiana is more dependent on property and individual taxes.
-- Property taxes account for 33.9 percent of state and local taxes assessed in Indiana, compared to 28.6 percent nationally.
-- Individual income taxes account for 26.1 percent of state and local taxes in Indiana, compared to 24.3 percent nationally.
-- General sales taxes account for 24.7 percent of state taxes nationally, but only 21.9 percent in Indiana. A similar trend is true of other states when it comes to other taxes: 22.5 percent nationally and 18.1 percent in Indiana.
On the other hand, Hoosiers on average pay less in state and local taxes than the average American. Tax revenues in Indiana amounted to $2,707 per person, while nationally the figure is $3,126. This means that the average Indiana resident pays $419 or 13.4 percent less in state and local taxes than does the average American.
State and local taxes make up 10.6 percent of Hoosiers' personal income, compared to 11.2 percent across the nation.
"Did we get away cheaply, or are we just cheap?" Marcus said. "A greater portion of spending in Indiana goes to education than in other states, but that does not mean we spend more than other states. In every area of government activity other than higher education, Indiana spends less per capita than does the nation."
Rather than look at the state's higher education spending, Marcus recommended that taxpayers look at the overall level of spending. State and local government spending in Indiana is equal to 18.6 percent of Hoosiers' personal income. Nationally, this figure is 19.3 percent.
"Hence to be even with the nation, which may be under-investing in the public sector, we could spend another 0.7 percent of our personal income on government services," Marcus said. "This would have amounted to an increase of $1.1 billion of spending in fiscal year 2000, a small price to pay to achieve mediocrity."
In another article, "Follow the Money: Indiana Income Tax Returns," Jerry Conover, IBRC director, reported that out of 2.9 million individual tax returns filed in 2001 with the Indiana Department of Revenue, 2,126 people had adjusted gross income of more than $1 million. There also were 6,936 people who reported more than $500,000 in income.
Sixteen counties exceeded the state average of 5 percent of tax returns with income over $100,000. The largest number of $1 million returns, 387, were filed by residents of Marion County. Other counties with more than 100 incomes over $1 million were Hamilton, Allen and St. Joseph. Lake County had 98 millionaires.
At the lower end of the scale, in 10 counties the median adjusted gross income was no more than 85 percent of the Indiana median, which was $22,614.
More than 30 percent of all Indiana returns reported income of $10,000 or less, while 22.8 percent had income of more than $50,000 in 2001.
"The distribution of incomes is generally rather stable over time, with a slight upward shift reflecting the gradual increase in average earnings," Conover said.
INContext is published every two months and is circulated in print to Indiana business leaders and state and local governmental officials. It is available free of charge on the Web at https://www.ibrc.indiana.edu/incontext/. In addition, the INContext Web site offers access to articles in previous issues on the Indiana economy, county profiles and links to useful resources. Detailed information on incomes by county is available online at the STATS Indiana Web site at https://stats.indiana.edu/taxes_topic_page.html.