Hicks on SB 1 – Tax Shift from Business Property to Local Income

Good commentary from Ball State economist, Michael Hicks, on SB 1. I’d encourage everyone to read Hicks’ piece directly. He explains it better than I will. In any event, SB 1 was touted as property tax reform and, I suppose it is. But the impact on homeowners is minimal while the impact on schools and local government is large. Most homeowners will see a savings on their residential property of $100 or less. Some of the wealthiest might get up to $300.

The real shift seems to come from a couple of business personal property provisions. The exemption from filing on business personal property goes from $80,000 currently up to $2 million under the new law. Additionally, there is currently a 30% floor on depreciation for equipment. That floor goes away and businesses can depreciate the value equipment purchased after the effective date of this legislation down to nothing.

The legislation gives local government the opportunity to make up for the losses to some extent by raising local income taxes. “The new local income taxes can be raised by 1.8 percent to include municipal or county government, public safety and other local governments, such as schools and libraries.” Sen. Alting from Lafayette voted against SB 1 because he said it was mainly a way for State officials to say they were cutting taxes while making local officials the bad guys.

“They’re waving a flag, saying we’re the ones cutting your taxes … when what they’re doing is shifting everything on to the local government and saying, ‘You be the bad guys. You add the taxes needed to run a city or run a school,’” Alting said.

“We’re going to shift it to let (Lafayette Mayor) Tony (Roswarski), who is I think the best mayor in Indiana, be the bad guy. And we’ve left him no choice, the way I see it. … I wouldn’t do that to Tony, and I’d hope he wouldn’t do it to me. This is just wrong.”

Of course, local government can do nothing and try to get by with the de-funding of schools, libraries, public safety, and the rest. But, Hicks’ prior work suggests that this is perhaps penny-wise but definitely pound foolish.

SB 1 also means that every county, city, school and library district in Indiana will now have the chance to debate the value and cost of local public services. We will get to hear about the importance of schools, libraries and police to families, and how much these services cost. Some communities will choose wisely, crafting places that people wish to build their lives in. Other places will choose poorly. Then, we’ll all get to see the results.