The Tax Caps Would Be a Useful Economic Stimulus

February 16, 2009

For release Feb. 18 and thereafter (680 words)

With all their talk about stimulating the economy, you’d think Indiana Democrats would want a constitutional cap on property taxes. A cap would be an ideal stimulus for Indiana’s anemic housing market.
   
On Feb. 9, the Senate voted to write into our constitution a property tax cap of one percent of a home’s assessed value. Caps for farm property and business would be two and three percent respectively. The resolution now goes to the House where Democratic Speaker Pat Bauer intends to let it die without a vote. Bauer wants to wait until next year to gauge the impact on local government budgets of statutory tax cuts passed last year. These have yet to take full effect.
   
While Bauer’s stand does not kill the measure, it makes its future precarious. A constitutional amendment must be approved by two consecutive but separately elected General Assemblies and the voters. Should an amendment seem like a good idea to Bauer in 2010, that legislature would have time to approve it and get it on the general election ballot. But it would be harder to accomplish in a short session dominated by election-year politics.
   
From the standpoint of those who spend tax dollars — school and local government officials — Bauer’s approach sounds great. From the standpoint of Hoosiers barely hanging on to their homes, it’s a source of uncertainty.
   
Although they haven’t made the news much lately, homeowners are still smarting from the 2007 reassessment that saw bills in urban neighborhoods rise as much as 300 percent. These people are counting the days until the spring 2010 tax bill when the one percent cap is supposed to take effect. Assuming it does. Unlike a constitutional cap, a statutory one can be rescinded during any legislative session.
   
“I really do not think the average taxpayer has any idea what is transpiring in the legislature,” says Kathy Washburn who lives in a Marion County neighborhood that was hit hard by the 2007 reassessment. “Keeping the property tax issue on the forefront of not only our legislators’ minds but also on the minds of the local citizens is key. Amongst many other things, I want to send a clear message to Speaker Bauer that partisan politics need to be put aside.”
   
Washburn was one of hundreds of protestors who showed up at the governor’s mansion on July 4, 2007. It was the start of a tax rebellion that prompted last year’s legislature to pass immediate relief and initiate the constitutional amendment process. To make up for lost property tax revenues, lawmakers raised the sales tax by one percent.
   
Since then, the economic downturn has complicated the picture for homeowners. Home values are plummeting. Foreclosures are up. Construction permits are down. All counties have experienced a decline in home sales with Indianapolis seeing a 14 percent dip in the last quarter of 2008. A permanent tax cut would do more than any bailout to boost Indiana’s housing market.
   
In a recent article commenting on the decline of the housing market in upstate New York, economists Steve H. Hanke and Stephen Walters called property tax cuts “the most effective possible housing stabilization policy.” Hanke is professor of applied economics at The Johns Hopkins University. Walters is professor of economics at Loyola College in Maryland.
   
Higher property tax rates, they said, send home values downward. “Why? A $6,000 tax bill adds $500 to a monthly mortgage and simultaneously reduces the amount a buyer would be willing or able to pay for a home. Cut the tax bill and you help struggling homeowners hold onto their houses. And lower taxes allow would-be buyers to spend more for homes. High property taxes also discourage investment in new homes. Builders won’t build where property taxes drive buyers away.”
   
That’s one more reason why the House should vote on the constitutional amendment this session. It would not only reduce the cost of home ownership for Hoosier families but reassure folks on fixed incomes that they won’t have to sell their homes to pay for groceries.

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



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