Talk of taxes and tax reform is in the air again.
At the federal level, the “fiscal cliff” of Jan. 1 was more about political theater and procrastination than effective solutions. Less publicized, the most recent phase of Obamacare brought some new taxes.
In addition, the 2 percent “holiday” on payroll/FICA taxes resulted in much higher taxes for all workers. Politicians in Washington generally ignore this most burdensome aspect of income taxation — 15.3 percent of every dollar earned (up to a cap of $110,100).
This is regrettable, especially since FICA hammers the working poor and those in the middle class. For example, someone earning $20,000 loses about $3,000; someone earning $60,000 loses about $9,000.
At the state level, Indiana is talking about tax cuts, given its projected budget surpluses. Gov. Mike Pence has proposed a reduction in the marginal income tax rate from 3.4 percent to 3.06 percent.
If I were king, I’d reduce income taxes overall but specifically would eliminate state income taxes on the working poor and expand the state’s Earned Income Tax Credit.