How is anyone supposed to understand the tax maze created by our beloved General Assembly?
For example, we have three local option income taxes. The revenue is collected by the state and sent back to the county where the taxpayer resides. These taxes enable counties to lower property taxes, pay for needed local services and lift themselves through the miracles of economic-development efforts.
The idea is wonderful, but who can understand these taxes?
First, there is CAGIT (the county adjusted gross income tax). It ranges from 0.25 percent to 1 percent on the taxable income of county residents. Except for the exceptions noted below, the amount that goes for property-tax relief is dependent on the rate (0.25 percent up to 1 percent) chosen by the county council. If it goes for the lowest rate of 0.25 percent, then half the CAGIT money goes for propertytax relief and the balance “in part for additional property-tax relief and in part for general governmental purposes.” If the council chooses higher tax rates, lower percentages are assigned to property-tax relief and more to general purposes.
However, Jackson and Pulaski counties may impose taxes of 1.1 percent and 1.3 percent, respectively, where the added revenue is to be used for jails and a juvenile or justice center. Daviess, Elkhart and Marshall counties can impose 1.15 percent, 1.2 percent or 1.25 percent for jail construction or repair. Union County, where there may be no crime at all, can have a rate of 1.25 percent; the added revenue may be used for repairs and renovation of the county courthouse.
Why not treat every county alike? Of our 92 counties, 56 have adopted CAGIT and are scheduled to receive $339 million in 2005.
Our second entry in the confusion derby is COIT, the county option income tax. COIT revenue also is intended for property-tax relief, but the list of alternative uses is broader than with CAGIT. While CAGIT is voted on by the county council, COIT is approved by a county tax council, a fabrication based on the various political entities in the county. The tax rate may vary from 0.2 percent to 1 percent.
Twenty-seven counties use COIT as an alterative to CAGIT, which leaves just nine counties without either. COIT distributions in 2005 will approximate $433 million.
Third, we have CEDIT, the county economic development income tax, which can range up to 0.5 percent but not exceed 1.25 percent when combined with CAGIT or 1 percent with COIT. Ah, the razor-sharp distinctions made by our representatives. CEDIT has been adopted by 71 counties (48 also use CAGIT and 17 also use COIT, while six use CEDIT alone). These 71 counties will receive an estimated $197 million in 2005 for a variety of purposes that may or may not be described as economic development. For example, CEDIT is used for the public library in Hancock County and the jail in Knox County.
Lake, Posey and Sullivan are the three counties that employ none of the county option income taxes. Each is home to commuters who derive their incomes from elsewhere. Are these counties worried that the commuters will move out if there is a local option income tax? Don’t they need the money? Do they presume there is some virtuous platform on which they stand apart from other Indiana counties?
In Lake County, the answer is probably simple. The people who live in the central part of the county feel their money would be used to support the people who live in the northern part of the county. Since there is a civil war in progress in Lake County, any semblance of progressive cooperation is unlikely.
But what’s the problem in Sullivan and Posey counties? Are they just confused by the machinations of the Legislature? If you know the answer, let me know.
In the meantime, the General Assembly might simplify the county option income taxes into a single, understandable tax that does not spell out how the funds are to be used. Let’s try to assume our local officials are at least as mature as our legislators.
Marcus taught economics at Indiana University more than 30 years and is the former director of IU’s Business Research Center. His column appears weekly.To comment on this column, send e-mail to email@example.com.