Matthew Tully wrote a very thoughtful column in last Thursday’s Indy Star (Tully: Commuter tax is fair, like it or not) on the idea of a commuter tax, and in particular the unfairness of Indiana’s current system of taxation, in which the residents of Marion County/Indianapolis provide and subsidize the jobs and infrastructure that benefit the residents of surrounding counties whose residents commute into Marion County to work.
This is a topic that comes up from time to time, and various proposals are periodically floated to make the system more fair to counties (like Marion) that are net employment counties — counties into which large numbers of residents of other counties commute for work. Indiana’s system of income taxation has all income tax collections going to the county in which an individual resides, regardless of where she or he works. There are fewer net employment counties (generally, but not always, urban counties) than suburban counties, and thus a more fair system of taxation has proved thus far to be politically unpalatable.
Tully makes the case (and I agree with him) that some sort of modification of this system — for example, in which a small percentage of the income tax collected from an employee would go to the county where the job is — would be more fair, and in fact, would benefit everyone by ensuring that the employing county would have the resources to maintain the infrastructure that benefits both the employer and the employee.
So how would a commuter tax — or at least some sort of income tax revenue sharing between employer counties and the counties in which employees live — look in Monroe County? The StatsIndiana site provides a nice tool with which to analyze commuting patterns — the Annual Commuting Trends Profile — using Indiana Department of Revenue data analyzed by the Indiana Business Research Center (IBRC).
The data from Indiana tax returns for 2012 (the latest year for which data is available) shows that Monroe County is clearly a net importer of labor from other counties (and states). 15,613 workers live in other counties or states but work in Monroe County. Only 5,683 workers live in Monroe County but work outside of the county, meaning that almost 10,000 net workers commute into Monroe County for work.
The following chart illustrates the top five counties sending workers into Monroe County.
Another similar chart illustrates the top five counties receiving workers from Monroe County (“out of state” counts as a county, for this analysis).
So while Monroe County employers clearly provides jobs — and local government provides the infrastructure and services required to support these jobs — local government in Monroe County does not receive any revenue associated with these jobs filled by commuters from other counties. No property tax, no income tax.
Unfortunately this data set only includes the number employees commuting in or out of Monroe County, not their income. It would be useful to have this information to determine whether or not a revenue-sharing arrangement would be beneficial to Monroe County. For example, 1076 employees commute to Marion County from Monroe County. While this number is much smaller than the number of employees commuting overall into Monroe County, one might surmise that the incomes of employees commuting to Marion County from Monroe County would be substantially higher than average. We would have to know the incomes of the employees commuting into versus out of Monroe County to know whether a commuter tax or revenue sharing arrangement would be beneficial. However, regardless of how beneficial it is, it is clearly a fairer system to apportion the revenues in some way between the county in which an employee lives versus where she works.
I’ve been playing around with some sort of metric that would measure the commuting patterns as a percentage of the overall economy of a county — that is, a good measure of whether a county is a net employer-county — and would allow good comparisons between counties for analysis of tax fairness.
My first attempt is the following: net in- versus out-commuters as a percentage of the total number of residents of a county who work (known as the implied resident work force). The following chart shows what this calculation would look like for a couple of Indiana counties that Monroe County is frequently benchmarked against:
Clearly this metric does distinguish net employer counties like Marion — and Monroe and Tippecanoe and Vanderburgh– from suburban “bedroom” counties, like Hamilton and Hendricks and from rural counties like Greene. There are a couple of anomalies that show up. Despite including the second-largest municipality in Indiana, Allen County’s net in-commuting is a relatively small percentage of its work force. Martin County is also an anomaly, due to the large number of people who commute to the Crane Naval Surface Warfare Center from surrounding counties.
I hope that the discussion will continue during the upcoming General Assembly session, and I would expect this topic to receive some significant discussion by the newly-created blue ribbon commission on taxation. It is in everyone’s interest to promote economic development by ensuring that local governments can continue to provide the infrastructure and services to create and sustain good jobs.