Not all Hoosier taxes are as low as they can be

(Fort Wayne) News-Sentinel

Indiana officials often boast, with some justification, that our state has a very business-friendly environment, meaning among other things a low rate of taxation. But having a low rate of taxes overall does not mean all individual taxing components are where they should be.

For example, Indiana has the second highest state-level sales tax in the country, after only California’s 7.5 percent. Indiana’s 7 percent rate is tied for second nationally with Mississippi, New Jersey, Rhode Island and Tennessee, according to the Washington, D.C.-based Tax Foundation.

Any tax will have negative consequences, and the sales tax is no exception. It can depress commerce, especially when it comes to high-end items. And it is considered a regressive tax because it disproportionately affects low-income people, who must spend a higher share of their income on basic necessities or simple comforts. According to the Institute of Tax and Economic Policy, Indiana had the 10th most regressive tax system in the country.

Complicating our assessment of the sales tax is the fact that Indiana does not have local sales taxes, so the state ranks 21st nationally in overall sales tax burden. Indiana has a combined state and average local sales tax rate of 7 percent, which is significantly lower than the 10.25 percent currently charged in neighboring Chicago.

Some jurisdictions, however, including Allen County, have a food and beverage tax added on top of the 7 percent sales tax. That extra 1 percent pushes us even past California’s 7.5 percent.

Any way you look at it, the sales tax is one to consider when officials get in a tax-cutting mode.

The problem is, of course, that once you cut one tax you have to raise another if you intended to keep the same level of spending, and that will take us back to “any tax will have negative consequences.” And the ones that can produce the most revenue — property taxes and state-level income taxes — have the most negative potential.

It’s wonderful that the state has worked on keeping the overall tax burden relatively low. But keeping the sources of tax revenue balanced and fine-tuned is just as important. That ensures that the load is not felt disproportionately by any group of taxpayers, and it helps protect the state from the ups and downs of financial conditions.

This was distributed by Hoosier State Press Association.