Lawmakers Should Face This Fact: Hoosier Tax Burden Is Rising

April 16, 2007

Indiana Writers Group column for April 18 and thereafter
730 words

By Andrea Neal

    INDIANAPOLIS — As Indiana lawmakers enter 11th hour negotiations over tax and spending plans, a joke by author/humorist Peg Bracken comes to mind: “Why does a slight tax increase cost you $200 and a substantial tax cut save you 30 cents?”
    No matter how earnest the calls for property tax relief, history tells us that modest cuts in one tax are made up with larger increases somewhere else. Over time, taxes only go up.
    For evidence of that proposition, consider these figures, hot off the press from the non-partisan Tax Foundation:
    1. Hoosiers filed tax returns this week, but we won’t reach Tax Freedom Day until April 23. That’s one day later than we celebrated last year, and four days later than in 2005. Tax Freedom Day is the “theoretical day” when we stop working for the government and start supporting our families.
    2. This year, state and local taxes will consume a record setting 10.7 percent of Hoosier income, slightly below the national average of 11 percent. Hoosiers pay $3,887 per capita for state and local taxes on per capita state income of $36,169.
    3. Indiana ranks smack in the middle – 25th – in terms of its state and local tax burden. But we’ve been moving up the chart at a rapid clip. In 2000, we ranked 35th and in 1980 we ranked 42nd. The shift is largely the result of rising property taxes at the local level and the above-national-average 6 percent state sales tax in effect since 2002.
     “It’s a concern to me,” said state Sen. Luke Kenley, R-Noblesville, whose proposal for property tax reform is alive and kicking in the final days of the General Assembly. “You have to find that sense of balance.”
    “One primary reason why I am pushing property tax reform so hard is that 88 percent of local government spending is supported by property tax. This is way out of balance. Income tax is a better measure of ability to pay.”
    HB 1478, Kenley’s plan, is an almost 200-page document that would give Indiana homeowners some immediate property tax relief, while shifting to income taxes the burden of funding many services now financed by property taxation.
    Among other things, his bill would end the property tax replacement system created by Gov. Otis Bowen and the General Assembly in 1973. The Bowen plan doubled the sales tax from 2 to 4 percent and used the revenue to cut property tax bills by 20 percent, a savings that proved to be only temporary. Since 1980, property taxes have increased nearly 350 percent.
    While taxpayers and most lawmakers seem to agree with Kenley that balance is lacking in Indiana’s tax system, it’s unlikely his solution will clear all hurdles by April 29, the day the legislature is required to adjourn.
    For one, the short-term relief is tied to the passage of a controversial provision allowing slot machines at the state’s two pari-mutuel racetrack. Second, local officials are loath to support the plan because they fear unintended consequences. They blame this year’s expected 10 to 15 percent property tax increase on measures from years past, specifically elimination of the business inventory tax and the court-ordered move to a more market based property assessment system.
    The third objection: What Kenley considers comprehensive, others may consider too complex to resolve under deadline. The April 15 Indianapolis Star called the plan “mind-numbingly complicated.” Sen. Brandt Hershman, R-Monticello, co-sponsor of the proposal, told the Kokomo Tribune, “It is highly complicated. It highlights the difficulty of moving away from property taxes.”
    Kenley has tried hard to write a bill that would make property tax cuts and income tax increases a wash for the average taxpayer. But he acknowledges there is reason to cut taxes overall in light of the Tax Foundation statistics.
    The obvious area of cutting: “We probably don’t need township government in Indiana,” he said. “It would take a lot of willpower” to eliminate it. Kenley is not averse to raising the issue this session. “It’s a perfect opportunity to bring up that verboten subject.”
    The sentiment is noble, but the odds are against him. Based on current laws, the Tax Foundation predicts “taxes will continue growing as a percentage of income, and Tax Freedom Day will arrive later in the next few years.” The message for Hoosiers: Enjoy April 23 while you can and wish willpower for Indiana legislators.

Andrea Neal is a teacher at St. Richard’s School in Indianapolis and adjunct scholar with the Indiana Policy Review Foundation. Contact her at aneal@inpolicy.org.



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