The Pence administration is calling for a review of the Indiana tax code. The top goals are to simplify the code and to promote economic development. But another worthy goal, one that would boost the Indiana economy, is missing.
First, if the government is going to take our money, then it should do so as gently as possible. The U.S. income tax code is notoriously burdensome in terms of the billions of hours and dollars required to complete the paperwork. Governments will tax our money, but they shouldn’t unnecessarily tax our time, too.
Second, all things equal, fiscal and regulatory policies should minimize the damage to the economy and increase the possibilities of economic development. It is important for policymakers to strive for this goal.
But while Indiana’s leaders are looking at tax reform, they should achieve one other goal: eliminating the income-tax burden on working poor households.
These days, it is common to make loud, but vague complaints about the “gap between the rich and the poor.” Related to that, it is popular to advocate a higher minimum wage.
But a higher minimum is a mixed bag. To name two reasons among many: First, the minimum wage has both benefits and costs. By artificially increasing the price of less skilled, it will be less attractive to firms. Depending on the context, firms may respond by increasing prices to consumers or reducing other forms of compensation (e.g., free uniforms, discounts on product). But if these are not sufficient, firms will eliminate jobs.
It’s a shame to help some vulnerable people by harming other vulnerable people. This hurts those who lose jobs – short term and then long term, by taking away their opportunities to build skills, cutting off the first few rungs of the economic ladder that would allow them to move to the middle class.