A Citizen's Guide to Indiana

According to the Indiana Association of Cities and Towns, in addition to directly increasing sales taxes, The Daniels Plan will also have the effect of indirectly raising income taxes. This will happen because the various caps on property taxes will lead to a shortfall that will require local government to enact income tax hikes to continue to provide basic services.

Not only could many people end up paying an additional 1 percent in income taxes as a result of Daniels’ plan, but one top lawmaker said he might push legislation that would force every taxpayer to do so.

Because part of Daniels’ plan also would shift more school costs and child welfare spending to the state, Senate Tax Chairman Luke Kenley said he might propose withholding those changes until local governments raise income taxes.

Kenley, R-Noblesville, said that would further reduce the reliance on property taxes statewide.

“We could say that we won’t let the state take over your welfare fund or your school general fund unless you adopt this,” Kenley said. “I guess you could call that a carrot, but they may feel like it’s a stick.”

I respect Sen. Kenley a lot, but this strikes me as silly. If the State wants to impose an additional 1% income tax, the State should enact the tax itself.

In related news, some lawmakers are cool to Daniels’ idea of writing the property tax caps into the Constitution. I’m skeptical as well. Putting only one part of the plan into the Constitution lacks a necessary symmetry. If you are going to write a cap into the Constitution, I think you also need to write a new funding source into the Constitution or somehow limit government spending under the Constitution — or simply keep all of it in the form of necessary legislation. In my mind, Constitutionalizing only the cap is a little like pinching one end of a balloon. You’re just going to distort the balloon, not change the volume of the air inside. You also make it more structurally unsound. Future generations might decide that property taxes are a more equitable form of taxation than sales or income taxes.

Minority leader Bosma, Rep. Espich, and Sen. Long appear to be tripping over themselves in a hurry to amend the Constitution. Democratic leaders and the Indiana Association of Cities and Towns advocate a less hasty approach:

“Certainly, if there’s a proposed constitutional amendment, I would keep an open mind about it,” Pelath said. “But as a matter of general philosophy, I think you amend the constitution only with great reluctance, and only out of dire necessity.”

Pelath said the constitution is meant to be a timeless document, and legislators have to be careful to make sure they won’t regret the changes in the future as conditions and policies change.

Probably inappropriate, but the Republicans’ eagerness to amend the Constitution reminds me of Watson in the sex-education scene in Monty Python’s the Meaning of Life:

Headmaster: So just listen… now did I or did I not do vaginal
juices?

Pupils: Yes sir.

Headmaster: Name two ways of getting them flowing, Watson.

Watson: Rubbing the clitoris, sir.

Headmaster: What’s wrong with a kiss, boy? Hm? Why not start her
off with a nice kiss? You don’t have to go leaping straight
for the clitoris like a bull at a gate. Give her a kiss, boy.

Wymer: Suck the nipple, sir.

Headmaster: Good. Good. Good, well done, Wymer.

Duckworth: Stroking the thighs, sir.

Headmaster: Yes, I suppose so.

Another: Bite the neck.

Headmaster: Good. Nibbling the ear. Kneading the buttocks, and so
on and so forth. So we have all these possibilities before we
stampede towards the clitoris, Watson.

Watson: Yes sir. Sorry sir.

So, what’s wrong with a law, boy? No need to go stampeding toward the Constitution.

Trouble is a-brewing for The Daniels Plan already. John Ketzenberger has an article entitled Daniels’ plan taxes loyalty of business. Pat Kiely of the Indiana Manufacturers Association and Kevin Brinegar of the Indiana Chamber of Commerce told Governor Daniels that his plan “wouldn’t fly” before he released it.

In particular, they object to the differential in property tax caps for homeowners versus business. Under The Daniels Plan, taxes on owner occupied residences would be capped at 1%, non-owner occupied residences at 2%, and business property at 3%. It stands to reason that the business community would object to a shifting of taxes back onto them. In significant part, it was a shift away from taxing business that caused the residential property tax spike in the first place. Elimination of the inventory tax shifted taxes from business owners to residential homeowners. The old, artificial assessment rules had a tendency to undervalue residential property, thereby reducing their prices. The more recent market-based values, therefore, resulted in a shift from business to residential.

I’m not trying to say that the old way was fair. I don’t know enough about it to pass that judgment. But, the fact remains that there was a shift in taxes off of businesses and onto residential homeowners. It makes absolute sense that the Indiana Manufacturers Association and the Indiana Chamber of Commerce would want to resist a shift back.

The Associated Press is reporting:

Senate President Pro Tem David Long says Senate Republicans plan to present 10 bills with various aspects of the plan on an organization day in late November. He then wants committee hearings and votes to be held on the bills before the session begins in earnest on January 8th.

If they’re endorsed by the Republican-led Senate committees before then, they would be eligible for floor action on that day. Long wants Democrats who control the House to take similar action.

What the hell? Why? Why muck around with cutesy procedural nonsense? Let’s consider this thing head-on. Put it all in one bill, vet it through the committee process, and then vote it up or down. This seems too important to railroad through prior to the session or mess it up by having popular pieces of the plan approved while less popular (yet vital) pieces are shot down.

Maybe there is a legitimate reason for Long’s unorthodox proposal, but I don’t see it at the moment.

(h/t Taking Down Words.)

At long last, Gov. Daniels has announced a tax plan. According to his announcement, property taxes on residential homeowners would be limited to 1% of the home’s assessed value and would receive an increased homestead exemption. Taxes on residential rental properties would be capped at 2% and at 3% for business properties. Gov. Daniels would also like to raise the sales tax 1% to pay for these caps and dedicate certain gambling revenues to property tax subsidies.

Furthermore, property tax replacement credits to local government would be eliminated, but the state would assume school operating and transportation costs. Local governments would still be required to pay for the physical school structures and, under the Daniels Plan, more red tape would be placed on taxing decisions by local government.

I don’t have any strong reaction to the plan, probably because I don’t understand it well enough. A lot of it looks like legislation Sen. Kenley was looking for last year, so it’s probably not all bad. For my part, I’m not so much leery of Republicans trying to screw Democratic constituencies on this one; but I am worried about the State looking to solve its problems by screwing local government (see, e.g. the “balanced” 2005 state budget).

The Indiana Chamber of Commerce seems to be awfully cautious about the Daniels Plan at this point. And, that stands to reason. A significant part of the recent increase in property taxes for residential homeowners comes from shifting the burden away from business property over the past decade.

Ruth Holladay has commentary on the Daniels Plan. I have to disagree with her when she says, “But Daniels, like him or detest him, seems ahead of the game.” It took him 3 years to do squat about the property tax issue. Calling that “ahead of the game” is ridiculous.

Other commenters:
Abdul
Taking Down Words
Hoosier Pundit