Uncategorized Do tax credit cuts = tax increases?

Do tax credit cuts = tax increases?

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Under two bills now moving through the House, Governor Daniels is proposing the suspension of tax credits given every year for economic and community development. The governor sees the move as a cost-cutting measure, but could it also result in tax increases for the very individuals, non-profits and Hoosier companies that should be protected right now?

As Niki Kelly wrote in a related Feb. 5th Journal Gazette story,

This comes despite his [Gov. Daniels] urging lawmakers in his State of the State speech not to “make this recession worse by adding one cent to the tax burden of our fellow citizens.”

 Many of the tax credits targeted for suspension will hurt already depressed areas in the state.

These tax credits have led to the creation of thousands of jobs throughout the state of Indiana. I am disappointed that at a time we should be doing all we can to create jobs in this state, we are eliminating the essential job creation tools. — Sen. John Broden when his effort to protect economic development tax credits in the Senate on Feb. 1 failed along nearly party lines.

The suspensions are contained in Senate Bill 236,  which is being heard today in the House Ways and Means Committee (Watch LIVE at 10am Wednesday or on the archives). What is in store for the governor’s bill, authored by Sen. Brandt Hershman, is now up to Ways and Means Chairman Bill Crawford and SB236 sponsor Rep. Peggy Welch. SB236 language may also show up again in the Senate as an amendment to a surviving House bill.

Contained within SB236, the proposed suspension of Neighborhood Assistance Program credits has gained the most attention for the community development community.

NAP credits are awarded for beneficial programs including affordable housing construction and rehab, community revitalization, emergency shelter housing, foreclosure prevention services, homeownership counseling, child care services, counseling services, educational assistance, Earned Income Tax Credit services, emergency food assistance, job training, medical care services, recreational facility, and transportation services.

In the 2009-2010 program year, 165 non-profit organizations received allocations of NAP credits. Approximately 3,500 individual and corporate taxpayers receive the credit in any given year. Since 1989, the Indiana Association for Community Economic Development estimates that $36.7M of credits have been awarded, leveraging $73.5M in private investments, for countless projects across Indiana.

Other proposed cuts are the suspensions of credits targeted to incentivize economic development in distressed communities facing high unemployment and poverty:

  • Enterprise Zone Investment Cost tax credit
  • Enterprise Zone Loan Interest credit
  • Community Revitalization Enhancement District (CRED) tax credit

Other proposed credit suspensions under SB 236

  • Teacher summer employment tax credit
  • Maternity home tax credit
  • Tax credit for making available a health benefit plan
  • Small employer qualified wellness program tax credit

According to the SB 236 fiscal impact statement, the suspension of the various tax credits could save more than $8 million per year.