Economic and Marketing Information
FOR INDIANA   FARMERS
Prepared by the Agricultural Staff of Purdue University, Lafayette, Indiana
April   30,   1964
Impact of New State Taxes  on  Farmers'
James A. Papke, Department of Economics
Prior to the adoption of the new tax system as passed
by the 1963 Indiana General Assembly, a single source,
the gross income tax, produced about 80 percent of the
state's general fund revenue. Farmers paid 2.6 percent
of the total collections under the gross income tax. It
is estimated that farmers will pay 1.2 percent of the total
collections from the two new taxes which substitute for
the gross income tax.
No tax is free of defects and distortions. Virtually
complete dependence on any one tax aggravates the situation. Thus, the new system emphasizes diversity of revenue sources. The new system includes: (1) a two percent
personal income tax, with taxable income defined as
adjusted gross income for federal income tax purposes less
taxpayer and dependency exemptions; (2) a two percent
retail sales tax with a $6.00 per capita tax credit or refund;
and (3) a two percent corporate net income tax patterned
after the federal levy and applied as a minimum alternative to an increased corporate gross income tax. The combination of tax reform and revision is expected to yield
$667 million over the 1963-65 biennium, compared to
$460 million which probably would have been realized
under the old gross income tax with no rate changes.
How much will farmers pay under the new tax plan?
How will their payments compare with those of non-
farmers? Also, how would farmers have been affected
under alternative tax measures?
Estimates of this type are not precise, particularly
when they involve projections of payments of new taxes
and of hypothetical levies. It is possible, however, to develop reasonable approximations.
Keep in mind the fact that this discussion treats only
new General Fund taxes. It does not deal with the local
property tax payments of farmers and other owners of
real estate and personal property. Thus, the article treats
only part of the taxpayer's total tax package.
1 Abstracted from a more detailed study, "Indiana Farmers
and State Tax Policy: The Question of Differential Impact by
Professor Papke.
How Much Will Farmers Pay?
Published statistical data of the Internal Revenue
Service, the USDA, and the Indiana Department of Administration, indicate that Indiana farmers will pay an
estimated $2.4 million in personal income tax, or about
one percent of the $257 million expected to be collected
from this source over the two-year period, 1963-65 (Tabic
1). Note, however, that in line 4 it is estimated that
farmers will pay during the two years over $111 million
in other state-local taxes. These are largely local property
taxes.
The information in Table 2 provides the basis for estimating the retail sales tax to be paid by Indiana farmers.
As given on line 6, farmers will likely pay about $2.6
million or l1/^ percent of the total $177 million of sales
tax collections.
(cont on page 5)
Table 1. Derivation of estimated personal income
tax payments of farmers, 1963-65
Millions
Item of dollars
1. Net profit from farm business   278.4
2. Plus: Income from non-farm sources  (wages and salaries, interest, dividends, net rental income, etc.)   .... 213.3
3. Equals: Adjusted gross income of farmers   491.7
4. Plus:   State-local   farm   business  taxes    111.2
5. Minus: Taxpayer and dependency exemptions   484.0
6. Equals: Taxable income   118.9
7. Tax at 2 percent   2.4
Table 2.  Derivation  of estimated  retail sales tax
payments  of  farmers,   1963-65
Millions
Item of dollars
1. Total farm family nonbusiness expenditures      416.8
2. Times: Percent of expenditures subject to tax  719
3. Equals:   Total   taxable  purchases       299.7
4. Tax   at   2   percent           5.9
5. Less: per capita sales tax refund          3.3
6. Equals: Total tax payments          2.6