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State's Tax Code Study Finds At Least Six Underused Income Tax Credits

Dave Dugdale

The state says at least six Indiana income-tax credits aren't accomplishing much.

Legislators last year ordered a comprehensive five-year review of all state tax incentives -- 14 tax breaks got a look in year two.

Office of Fiscal and Management Analysis spokesman Pete Holloway says four incentives for building low-income housing have had, in his words, "little to no impact" on getting such projects built. And he says the use of two credits for rehabbing historic buildings plummeted four years ago and hasn't recovered.

Holloway says similar credits have been more successful in other states where the amount of the credit was unlimited, unlike Indiana's $1,000 cap. And he notes the rehab credit applies only to buildings at least 50 years old.

Holloway says Hoosiers received eight million dollars in tax credits for donations to universities, while credits for donating to the 21st Century Scholars Program – which has the same $200 cap -- totaled $25,000.

“The awareness and the cause may be what’s distinguishing individuals from contributing to one cause or the other,” Holloway says. “Both are going to higher education, both provide the same discount -- it’s just one is being used by a lot more individuals and one, frankly, doesn’t seem to be used at all.”

Holloway says it'll be up to legislators to decide whether disuse is enough reason by itself to repeal a tax credit.

He says some credits for charitable donations, even though they involve a negligible amount of money, still represent 12-to-15-percent of the budgets of the programs they target.

Holloway says the Earned Income Tax Credit has reduced the number of Hoosiers in poverty by 23-percent by creating a financial incentive to work, especially for single mothers.

“If we add the refundable credit to their annual income and then readjust where they stand on the poverty line, what we’ve noticed is a decrease of the numbers of families in poverty – roughly about 23-percent, if we include both the federal and the state,” Holloway says.

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