Indiana hosted a conference on tax competitiveness and tax simplicity recently. The event will receive a lot of merited attention in the coming months and years as Indiana grapples with some lingering weaknesses in our tax code. I was lucky enough to attend the conference and can offer a few insights.
Tax competitiveness and tax simplicity are vague phrases that deserve some explanation.
Competitiveness in a tax code means a structure of tax rates, tax types and a suite of public services that provoke households and businesses to relocate or stay in Indiana. We surely disagree on how to get there, but as an aspirational goal this would seem a wise pursuit.
Simplicity, of course, means that the tax code is easy for government to administer and easy for households and business to comply.
This obvious definition is only the veneer of simplicity, for you see all complexity in taxes is the result of basic unfairness. Every loophole, every deduction, every exemption, every abatement, every special carve-out of taxes is designed to benefit one class of citizens at the expense of others. In the end these are neither fair nor simple. They are rarely effective.
For every small deduction, credit or exemption crafted in our tax code for disabled veterans or Girl Scout donations, there are hundreds of far more dubious credits that have slipped into the code to benefit installers of solar-powered roof vents, builders of riverboat casinos and others. Fixing these inequities in the tax code was a major theme of the tax conference.
As with any research-based conference on taxation, there were some provocative ideas from thinkers and doers from around the world. We heard about the remarkable transformation of New Zealand’s tax code, which literally rescued the country from bankruptcy while increasing direct payments to the poor and unemployed. We heard about the challenges state tax codes face when linked to federal income tax rules and the trials of reforming a federal tax system that has become purely political.
Those of us at the conference heard about the difficulty in explaining equity in taxation when a legion of tax preparers and other special interest groups require complexity and unfairness as part of their business model. We heard how corporate taxation reduces worker wages and how we could help lower-income households by dramatically dropping the sales tax rate through the inclusion of a tax on services not just goods.
We heard about ways to reduce the business personal property tax while making whole local government revenues. We heard about ways to cut the wheeling and dealing of economic development incentives while making Indiana more attractive to commerce.
It was a rare and important content-rich experience of which I will write much more.
Indiana’s taxes are already fairly competitive, but they are neither fair nor simple. Over the coming months and years all of us need to let our wisdom and courage overpower our ideology and make Indiana the model state for tax competitiveness, simplicity and equity.
Michael J. Hicks is the director of the Center for Business and Economic Research and an associate professor of economics in the Miller College of Business at Ball State University. Send comments to firstname.lastname@example.org.