Everybody’s favorite economist, Larry DeBoer, has column entitled Capital Comments which appeared in the Carroll County Comet. As always, he does a good job of explaining the implications of legislative tax policy.
Again, he explains why the increase in local taxes. First, property taxes on inventories will be eliminated in 51 counties this year. That means the tax burden shifts from taxpayers with inventories to other taxpayers. Another policy change is trending — updating assessed values each year to keep up with changing sales prices. Since they’re playing catch up this time around, 1999 sales prices are being “trended” to 2005 selling prices. In the future, this should make for more gradual assessment changes, but this year it can be rather jarring. Prof. DeBoer says that so far it looks like home assessments are being trended upward a lot more than business assessments, thereby shifting the tax burden toward homeowners.
He notes the legislative Band-aid solution this year — “racino” income. Race tracks are paying big bucks for the right to have slot machines. The racino licensing money is being used to subsidize property taxes, thereby lessening the increase. He pointed out a practical (in addition to the political) reason for the much maligned rebate strategy. Instead of just reducing tax bills with the race track subsidy, the legislature required that homeowners get a rebate in November or December. The practical reason for that is that the the State won’t have the casino money until then.
Prof. DeBoer goes on to look at who wins and who loses under various new taxing options given to municipalities by the legislature. First, local government can use an income tax of up to 1% that would be used as a dollar-for-dollar offset of property taxes. The local government has three options for distributing revenues from this tax: a) for all property owners; b) for homeowners only; or c) for homeowners and rental-housing owners.
Under option “a” – all property owners, all property taxes would go down about 20%. Renters and employed homeowners would see their income taxes rise more than their property taxes were lowered. Farmers, retired homeowners, and corporate businesses would pay less overall.
Under option “b” – just homeowners, homeowner property taxes would be cut by about 50%. Almost all homeowners would see their overall tax burden reduced. Other property owners who earn income in the county would pay more.
Under option “c” – homeowners and landlords, homeowner taxes would drop by 1/3 and most would see an overall reduction in taxes.
I looked at the two property tax relief income taxes and at least in Fort Wayne couldn’t figure out how either option resulted in a net benefit for the individual taxpayer. The income taxes always were higher than the property tax cuts. Doesn’t seem like such a great deal…..
I wouldn’t call it a Band-Aid – it was more a used piece of kleenex jammed in the wound. The Legislature put off the issue of property tax relief until the last minute, then “realized” racinos were the only option left. It was a disgrace and the only reason they won’t get run out of office is that their elections are just about as far away as they could be. (Accident, I doubt it.)
Luke Kenley at least tried to implement some property tax relief, unlike a certain House majority leader. Funny how Bauer makes so much noise on gas taxes and so little noise on property taxes; it’s making me wonder if he isn’t out of his depth when it comes to financial matters.
Good point on the property tax issue. Even though I no longer practice in Indiana, but practice in Louisville, I have several business and individual clients who live in Southern Indiana. It’s great for business owners who have large inventories to be exempt from being taxed on that, but again it seems like not enough homework was done to mitigate the outrageous property tax increases on homeowners. I have individual clients who live in Clark and Floyd counties, who are seeing their residential property taxes increase at a surreal rate. In Clark County in particular, there have been problems even getting the property tax bills mailed out on time. (This problem doesn’t seem to be isolated to Southern Indiana either, I have a cousin who lives in St. Joseph County in Northern Indiana, and they have had problems getting their property tax bills mailed on time as well.) One piece of news for Kentucky taxpayers that may have national implications is that the U.S. Supreme Court announced on May 21 that they have agreed to hear arguments in Kentucky vs. Davis. Charles and Catherine Davis, Louisville residents, filed suit against the Kentucky Department of Revenue, to challenge Kentucky’s practice (as about 40 other states do), of exempting tax free Municipal Bond interest from Kentucky municipalites from Kentucky tax, while taxing, for Kentucky purposes, interest from non-Kentucky municipalities. This really isn’t an issue for Indiana taxpayers, as Indiana doesn’t add back tax free income (at the federal level), for purposes of computing Indiana income tax. It does seem to have broad implications for the $3 trillion dollar muni bond market though. The U.S. Supreme Court is expected to hear this case after their fall term begins in October, 2007, but it will probably at least next year before they announce their decision. In extremely high income tax states, such as California and New York, it will have much broader implications in trying to balance a state budget, though the impact in Kentucky is estimated to be about $4 million a year in lost revenues. (Not even taking into consideration potential refund claims.) It’s always been a bitch during tax season, getting the breakout of Ky. vs. NonKy bond interest from clients who have investments with several different brokerage firms to get the right amount to add back in order to complete the Kentucky tax return. It will be interesting to see how the U.S. Supreme Court rules on this.
Mike Kole says
When saying “the tax burden shifts” with the elimination of inventory taxes, it might be worth saying that the tax burden decreases if those in office choose to spend less. There need not be a shift.
It’s always an option, but rarely exercised. The deeper commitment by our elected officials is to spend taxpayer dollars. They may temporarily appease certain constituencies by eliminating one tax or other, but the fundamental problem remains when there is no willingness to get off the spending habit.
Lawmakers eliminated the inventory tax without at the same time reducing expenditures. So, I think it’s fair to say they shifted the tax burden. You’re right that they had the option of reducing government services. But, they chose not to exercise that option.
They have the option but not the will, in part because the will of the people isn’t for less services, it’s for the government to do more.