It’s Time for All Government to Spend Less

August 6, 2007

Indiana Writers Group column for August 8 and thereafter
745 words

By Andrea Neal
The Indiana Policy Review Foundation

    Well before property tax bills hit the mail, my mortgage company sent me notice of a $10 increase in my monthly escrow withholding.  It was the company’s best guess at how much my property taxes would rise this year and how much more I’d need to pay to fully cover them. The company estimates tax increases by using the Consumer Price Index for Urban Consumers inflation factor — 2.7 percent.
    As it turned out, my actual bill far exceeded the CitiMortgage projection. A 61 percent increase, not 2.7 percent, meant I would have to pay an extra $375 a month into my escrow account, not the $10 I’d been planning on. Thankfully, the governor stepped in and for now I’m paying the lesser figure.
    We’ve heard dozens of explanations for why property taxes spiked this year: the phase-out of the inventory tax, inaccurate reassessment of commercial properties and a cut in the state homestead credit. But by far the biggest factor is growth in government spending.
    The current crisis has prompted calls to abolish the property tax and replace it with higher sales and income taxes. Yet that alone would simply shift the tax burden around. To eliminate the property tax, without altering spending habits, would require Indiana to raise the income tax to 5.4 percent and the sales tax to 10 percent. That’s too much by any standard.
     As reported earlier this year by the Tax Foundation, state and local taxes will consume a record setting 10.7 percent of Hoosier income this year. That equals $3,887 per capita on an average per capita income of $36,169. Add another $5,488 in federal tax burden and we’re talking big money.
    The trends are not sustainable in the long term. Consider: The Consumer Price Index, which gauges the prices consumers pay for goods and services, has gone up 2.7 percent since a year ago. The average salary of U.S. workers has risen 3.5 percent. Federal government spending has jumped 7 percent. The state budget for fiscal year 2008: 9.6 percent. Marion County’s combined property tax levy: 10.2 percent.
    Our state and local governments, traditionally known for showing more restraint than Congress, just don’t anymore. The Indiana Chamber of Commerce notes, “Many local communities are rapidly increasing their spending, leaving it to taxpayers to pick up the bill. This spending comes from a wide range of government units that have expanded their budgets, be it cities, towns, townships, schools, libraries, sewer districts, etc.”
    At the federal level, “lawmakers have made no serious progress balancing new spending with savings elsewhere in the budget,” notes the Heritage Foundation report, “Federal Spending 2007: By the Numbers.”
    The country is at war, but just over one third of new spending since 2001 has gone to defense and homeland security. The rest has gone to expand entitlement programs, such as the 2003 Medicare drug benefit, or discretionary programs, such as the No Child Left Behind Act.
    Ironically, the New York Times reported Aug. 5, a congressional rule designed to expose the big spending practice known as earmarks (money for pet projects) has increased competition to get them. On the list this year: $100,000 for a prison museum in Kansas, $50,000 for the National Mule and Packers Museum in California, $250,000 for a wine and cooking center in Washington state.
    Government services are essential and most taxpayers willingly pay their share because they know the benefits outweigh the costs. All it takes is a bridge collapse to remind us of that. But there comes a tipping point when the cost of government starts to negatively affect our wellbeing. When angry taxpayers — rich and poor, Democrat and Republican — march in the streets, you’ve hit it. When homeowners must dramatically alter their own spending habits to pay the taxman, you’re there.
    We need look no further than Europe to see the consequences of excessive tax burden. Per capita economic output in the U.S. is more than 40 percent higher than in the European Union. The U.S. unemployment rate is significantly lower than Europe’s and has been for years.
    “I believe that increases in income and real estate taxes should be limited to the cost of living increase,” frustrated taxpayer David J. Folk of Fishers recently suggested to state lawmakers. Simple, but sound. What’s good for Hoosier families is good for government. A spending cap would work at every level, from the township nearest you to the big guys in Washington.

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



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