Indiana’s income gap continuing to widen

The disparity between haves and have-nots is growing in Indiana, and the rate of growth of that gap is outpacing all but five other states.

A report from the Economic Policy Institute and the Center on Budget and Policy Priorities released on Thursday shows the richest fifth of Hoosiers earned eight times the income of the poorest fifth in the 2000-09 decade. A decade earlier, the wealthiest Hoosiers earned six times more than the poorest.

Indiana is one of only seven states where the average income for the poorest families declined over the past three decades. U.S. Census data show the average income for wealthiest Hoosiers grew 57 percent since the late 1970s, but it declined almost 7 percent for the poorest fifth in the Indiana.

Only Mississippi, South Dakota, Connecticut, Illinois and Alabama have a worse record for growing income disparity.

State leaders like to suggest Indiana is an island of prosperity in the difficult economy, but the data show the water is getting deeper for all but the wealthiest of Hoosiers.

Gov.-elect Mike Pence proposed cutting Indiana’s individual income tax rate by 10 percent during his campaign. But the report’s authors think that move would only increase the gap because Indiana would be more dependent on sales taxes and user fees, which are harder on low-income households.

Romney plan could edge us off the cliff

Mitt Romney may have lost the election, but Democrats hoping to avoid the fiscal cliff are warming up to one of his ideas regarding how to raise more money through taxes without technically increasing them.

Romney proposed capping the amount a taxpayer can claim in total deductions. Though Romney avoided specifics, a hard cap in the neighborhood of $35,000 would not affect low- or middle-income Americans but would be the equivalent of a big tax increase on the rich. Though President Obama dismissed Romney’s idea, Obama has made a similar proposal, limiting deductions to 28 percent of income.

But a fixed amount would likely raise more money at the expense of the rich.

Politically, the limit would give Democrats cover because the Republican presidential candidate proposed it. Though it would meet Grover Norquist’s definition of a forbidden tax increase, some Republicans correctly argue that it does not raise tax rates but limits tax breaks.