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April 11, 2014

Indiana tax burden ranked 22nd

State lands in middle of the pack in state and local taxes

Indiana residents’ tax burden is the 22nd highest in the nation, a recent report indicates.

The Tax Foundation, a nonpartisan tax policy research organization, reported that Hoosier residents paid an average 9.5 percent of their incomes in state and local taxes in 2011, the most recent data available. That’s just under the national average of 9.8 percent.

As the deadline for filing federal tax returns approaches, economists will be paying most attention to the ratio of taxes paid to state and local governments in the forms of property, income and sales taxes, economist Michael Hicks said.

And the reality, he said, is that differences between local areas within a state will often be greater than the differences between state averages listed in the report.

“The experience of taxation of a resident in Logansport is going to be much lower than the experience of taxation of a resident in, say, Gary,” said Hicks, a Ball State University economist.

While there are differences in taxation between states, he said the total rate doesn’t vary much.

The highest state-local tax rate reached about an average 11.9 percent in New York, New Jersey and Connecticut, while the lowest was in Wyoming at 6.9 percent, on average. However, states in 16th to 35th place had very closely matched tax burdens — Oregon’s 10.1 percent average rate put it at the 16th highest rate while Georgia’s 35th-highest average rate was slightly over one percentage point less 8.8 percent.

In contrast, Indiana’s county income tax rates alone vary from 0.3 percent in Sullivan County to over 3 percent in Jasper County, a difference of almost 3 percentage points.

Differences between states lie instead in how taxes are collected, Hicks explained. Some states collect taxes on property, income and sales, while others tax only one or two of those areas.

The benefit of taxing all three — like Indiana does — is that no one behavior is discouraged too much, Hicks went on to say.

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