By Curt Smith
On the 2017 Family Prosperity Index (FPI), Indiana had the 31st best score (4.82) in the country—an increase of 0.4 percent since 2012 (4.80).
Indiana’s greatest improvement during this period came in its Economics score, which increased by 13.6 percent to 4.82 in 2017 from 4.24 in 2012. Correspondingly, Indiana’s rank in this major index category increased to 28th from 39th.
More specifically, the increase in Indiana’s Economics score was due to improvements in four out of the five sub-indexes: scores for Private Sector increased by 4 percent, Real, Per Household Income by 37 percent, Cost of Living by 1 percent, and Unemployment by 65 percent. Only Indiana’s score on the Entrepreneurship sub-index saw a decline of -32 percent.
At the same time, Indiana’s greatest decline during this period came in its Family Structure score, which decreased by -10.3 percent to 4.33 in 2017 from 4.82 in 2012. Correspondingly, Indiana’s rank in this major index category dropped to 38th from 29th.
More specifically, the decrease in Indiana’s Family Structure score was due to declines in three out of the five sub-indexes: scores for Marriages declined by -20 percent, Divorces by -86 percent, State of Households by -9 percent. Two sub-indexes showed improvement: the Children in Married Couple Households sub-index improved by 12 percent and Families with Related Children in Poverty by 7 percent.
Higher Gas Tax Would Erode Indiana’s FPI Score
The proposed increase in Indiana’s gas tax would hurt families, especially those of moderate- or low-income. This will negatively impact Indiana’s score in the Family Prosperity Index.
First, higher gas taxes will result in a higher state and local tax burden, as a percent of private sector share of personal income. Based on the first year’s estimated tax increase of $347.9 million, Indiana’s tax burden would increase 1.3 percent to 13.2 percent from 13 percent.
Second, the increased spending enabled by the higher gas taxes will result in a higher level of state and local spending, as a percent of private sector share of personal income. Again, based on the first year’s estimated tax increase of $347.9 million, Indiana’s spending burden would increase 0.6 percent to 28.8 percent from 28.6 percent.
The FPI’s Government Burden sub-index takes both variables (tax burdens and spending) into consideration. Consequently, Indiana’s Government Burden score would fall 1.5 percent to 5.92 from 6.00 and rank would fall 2 spots to 10th from 8th best.
Third, a higher gas tax would boost the cost of living in Indiana. Cost of living measures are tax inclusive of excise taxes because the tax is embedded in the price. In other words, businesses will pass the higher gas tax onto consumers through higher prices. Higher prices mean a higher cost of living. Additional research will be required to quantify the impact on FPI’s Cost of Living sub-index score.
Fourth, gas taxes are particularly regressive because they hit the budgets of lower-income families the hardest. According to the 2014 Consumer Expenditure Survey, “gasoline and motor oil” exhausts 11.3 percent of “income before taxes” for consumers in the bottom quintile and 6.8 percent for consumers in the 2nd lowest quintile. In contrast, these expenditures only represent 2.2 percent of income for consumers in the top quintile.
This highly regressive tax will stifle any progress low-income families are making as they struggle to climb out of poverty. For instance, in the Families with Related Children Below Poverty sub-index, Indiana ranks a mediocre 28th. Thankfully, Indiana has been making progress in recent years with the percentage of these families below poverty falling -11.3 percent to 17.2 percent of all families from 19.4 percent.
However, higher gas taxes on these vulnerable families will, at best, slow further progress in the Families with Related Children Below Poverty sub-index, or, at worst, reverse progress.
To be sure, the infrastructure improvements would be a boost to Indiana’s economy. That said, the negative impacts on Indiana’s families will outweigh any positive impact in the long run. Policymakers should scrap this idea and go back to the drawing board.