Thursday, March 9, 2017
IFI Staff
Why Increasing Indiana’s Gas Tax Would Hurt Families

The Indiana House of Representatives recently passed HB 1002, a bill that, if passed by the Indiana Senate, will increase the gas tax and vehicle registration fees, and also lay the foundation for toll roads on Indiana highways.

The Andrew Smith Center for Family Prosperity has commissioned the American Conservative Union to conduct a full review of the proposed gas tax increase and what it would mean practically for families in Indiana.

You can read the full text of the report here.

Analysis in the report shows that a higher gas tax would likely have a dramatic effect on the cost of living in Indiana. It concludes that the proposal would almost certainly hurt Hoosier families – especially those in moderate- or low-income earning households.

One of the measures the Andrew Smith Center for Family Prosperity uses to assess economic prosperity is the Family Prosperity Index. The index allows us to take a deeper look at the strength of the economy through a variety of different lenses, including household income, cost of living, unemployment marriage and divorce rates, and various poverty statistics.

All the state indexes are stacked up against each other to determine how prosperous the state is for families, relative to all others. In the 2017 Family Prosperity Index (FPI), Indiana had the 31st best score in the nation, a slight increase in performance from the previous year.  

This proposed gas tax, however, would likely cause Indiana’s FPI score to drop, which may cause additional issues for the state.

Any time an area’s cost of living increases, residents often choose to relocate to more affordable and prosperous areas – in this case, states with more favorable FPI scores. This proposed tax may actually drive people out of Indiana, leaving even fewer taxpayers to saddle the heavy burden of the new tax increase.

“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…”

To be sure, the infrastructure improvements that serve as the main motivator for the proposed tax increase would be a boost to Indiana’s economy.

That said, the negative impacts on Indiana’s families through increased costs of living would outweigh any positive impact in the long run. Policymakers should scrap this idea and go back to the drawing board.

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