Lately, at least in Indianapolis, nice people have been making noises about taxing neighbors who do not live in Marion County but work there.
In the case of a commuter tax, fairness and efficiency mean getting people who work in your county to pay part of the expenses for public services. These include police, fire, sewers, mosquito control, street lighting, pavement maintenance, snow removal, flood control, traffic regulation, emergency response and other aspects of civilization in the 21st century.
Approximately 300,000 workers pour into Marion County each day. At the same time, about 116,000 workers leave Marion County daily to work elsewhere. (These numbers, for 2011, come from the Longitudinal Employer-Household Dynamics database of the U.S. Bureau of the Census. If you prefer, you can use the Indiana Department of Revenue’s numbers of 184,000 coming into and 44,000 leaving Marion County in 2012. The differences are due to the widely varying sources of the two originating organizations.)
According to the U.S. Bureau of Economic Analysis, commuting accounted for a $16.6 billion outflow of earnings from Marion County and a $3.1 billion inflow in 2012. That big net outflow ($13.5 billion) tempts Marion County residents who see their jobs enriching strangers from Hamilton, Johnson and other counties. It’s an imbalance of trade that some insist demands action.
Similar issues exist elsewhere. In Elkhart County, 47,900 workers came into the county daily in 2011 while 24,400 left; the net outflow of earnings from Elkhart County was $1.2 billion. Allen, Vanderburgh and Vigo counties had net outflows of $1 billion, $1.2 billion and $373 million, respectively. Lake County, by contrast, was a net exporter of labor and a net importer of earnings ($474 million).
If the state legislature allows Marion County to levy a tax on its inbound commuters, should a similar tax be charged to Marion’s residents working in the surrounding counties? Some good people in Marion County want a share of the local income taxes paid by inbound commuters to their home counties. This, we are told, results in no increase in taxes for those commuters, just a (just) redistribution of local government revenues.
If local government revenues in Shelby or Hancock counties fall because of sharing with Marion County, then it might be natural for those counties to raise their taxes to recover the shortfall. This means some of the tax burden would shift from commuters
Is the income tax the right tax to do this? Wouldn’t it be more “fair” to tax the miles driven in Marion County by out-of-county residents? Indiana already has the EZ-Pass system working on the Toll Road. Why not extend that to the borders of our respective counties?
Then, what about the very substantial benefits people in outlying counties get because our urban counties have such wonderful resources? You don’t have to go to the zoo in Fort Wayne or Evansville to benefit from the fact that it is there. Your option has a value that could be taxed.
Ah, what webs we weave when we seek to be fair and efficient.
Morton Marcus is an economist, formerly with the Indiana University Kelley School of Business. Send comments to firstname.lastname@example.org.