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For a family of four trying to stretch $16,000 over the course of a year, $200 is a big chunk of cash.
That family would have to part with that cash in Indiana, because the Hoosier State is one of six that tax the incomes of families in severe poverty.
A recent report by the non-profit Center on Budget and Policy Priorities, a Washington, D.C., think tank, calls on Indiana and other states taxing low-income families to revisit its tax policies.
The state’s income tax threshold last year for a two-parent family of four – the lowest income at which a family has state income tax liability – was $15,500, third lowest in the nation.
A two-parent family of four at the federal poverty line, or earning $22,017, owed $263 in Indiana income tax last year. That same family would have owed $214 in Illinois, $168 in Ohio and $89 in Kentucky, according to the report.
The report comes as social-service agencies are reporting unprecedented need as local residents deal with high unemployment. Pastor Truman Smith of Third Street Church of God welcomed some of those struggling residents Tuesday afternoon as his food pantry awaited a weekly delivery from Community Harvest Food Bank’s Food Wagon.
The garrulous Smith held court Tuesday in a folding chair inside the church at Third and Wells streets, indulging in one of his favorite pastimes: telling jokes. But he grew serious quickly as he discussed the people he has met through the food pantry and the sad tales this recession has wrought. He recalled chatting with a woman who told him she planned to have Thanksgiving dinner at St. Mary’s Soup Kitchen.
“I gave her $5, and she almost cried,” he said. “People are bankrupt all over Fort Wayne.”
Benjamin Franklin observed that death and taxes are all that are certain in this world, and low-income families in Indiana tend to take the income tax as an assumed expense, said Jonathan Ray, president and CEO of the Fort Wayne Urban League.
Ray has spent years working in social services, including as director of the Allen County Division of Family and Children, which administers food stamps and other benefits. He said a tax of $100 or $200 might not seem like a lot, but it can have a huge effect on a family stretching dollars.
“Every dime makes a difference for a poor person,” he said.
States’ policymakers have increasingly viewed the exemption of poor families from taxation as a way to reduce poverty and support work, according to the Center on Budget and Policy Priorities. The federal government has exempted such families from the income tax since the mid-1980s.
Between 1991 and 2008, the number of states that have taxed poor, two-parent families of four decreased from 24 to 16, according to the center.
Of course, states set their own income tax policies, and Indiana has taken steps in the past few years to lower the amount of income tax a family of four has to pay. Adjusted for inflation, the state income tax that a family of four at the poverty line pays in Indiana has decreased 52 percent since 1994, according to the report.
Alabama, which went 15 years without an adjustment to its income tax threshold before raising it in 2006, remains the state that taxes low-income families heaviest. The Center on Budget and Policy Priorities advocates states should make enacting tax cuts targeted to poor families a priority, even though it’s harder for them to do it while a bad economy is reducing state revenue.
In Indiana, the individual income tax is the state’s second-largest source of revenue. This year, the state has brought in more than $2.4 billion in sales tax and more than $1.4 billion in individual income tax, but those totals have fallen more than $475 million short of revenue forecasts, according to the governor’s office.
But advocates point out that the state might be going to the trouble of taxing low-income families only to supplement their income in other ways, such as through food stamps. The families might turn to food banks or other social-service programs, said Sarah Downing, a research and policy analyst for the Indiana Community Action Association.
“It seems like you’re taxing them and then having to supplement their income,” she said.
