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.