Kick-Starting the Month

January 2, 2014

The ‘Unintended Consequences’ of Careless Public Policy

(For the use of the membership only.)

“The irony is that Gov. Mitch Daniels’ 2008 property-tax reform is in part responsible for what the Chamber is calling a skewed tax burden.” — Scott Smith in the Dec. 23 Kokomo Tribune

IT DIDN’T make any of the New Year’s Day lists, but it has changed our lives nonetheless. It is the acceptance of “unintended consequences” as a workable excuse for catastrophic public policy.

Sure, we all make mistakes. Indeed, the economic philosophies favored by this foundation are grounded on the assumption that no matter how smart the humans gathered in a room are, they would lack sufficient information to make flawless decisions.

Those who now plead unintended consequences, however, do not concede such fallibility. They guarantee effectivity, if not perfection. All they require is official license, unlimited money and, of course, the power of fiat.

Pulitzer Prize winner Saul Bellow famously referred to this in aggregate as “The Good Intentions Paving Company,” with the road to hell being what is paved.

We have come to expect this from Washington. What is dismaying is that we are seeing this same thinking at the city, county and state level.

On our desk is an excellent analysis by Scott Smith of the Kokomo Tribune under the headline, “2008 Property Tax Reform Had Unintended Consequences.” Smith casts a reporter’s eye on an inference by the state Chamber of Commerce that it was blindsided by former Gov. Mitch Daniels’ property-tax reform.

It seems that the signature achievement of the Daniels administration contained anti-business elements that in 2008 apparently slipped past the Chamber, which supported the enabling legislation. The result was a $3-billion shift from residential homesteads onto industrial and commercial property.

This, dagnabbit, skewed the tax burden away from job creation at the very moment Indiana entered a historic recession and just as falling revenues put small-town budgets under stress. Who knew?

Dr. Eric Schansberg, for one. Schansberg, an economist and adjunct scholar with the Indiana Policy Review Foundation, pointed out what should have been obvious: Unless someone finds the courage to eliminate unneeded programs, it does no good to cap one set of taxes if you are only going to raise rates on another. Schansberg, writing in the January 2008 issue of the foundation’s quarterly journal, offered this warning regarding Daniels’ politically crafted approach:

“For those Hoosiers who want a large government, there are no easy ways to raise the money to finance it. There are no efficient ways to raise it, either. And of course, finding an equitable way to raise so much money is particularly difficult — at least in the eyes of those being taxed.”

Schansberg explained that property taxes were only a symptom of larger problems that, it turns out, were only deferred by the tax cap, all of them left unsolved and unalleviated.

Those problems, Schansberg noted, are the predictable rather than unintended consequence of “trying to fund large-scale government, and fund it through the activity of politicians, interest groups and a public that hasn’t the time or energy to pay much attention to the inequities and inefficiencies of political behavior.”

A knowledgeable observer who spends many hours in the halls of the Legislature sat me down one day for this overview:

“Look, mercantilism is the best game in town. Patronage pays even when free-market signals are clouded — or are just wrong.  Indeed, the false flags that are our economic ‘recovery’ treat as a sucker the honest business operator who tries to use his or her wits to succeed. So, from a pure economic sense, it is the right economic decision to play the game and ingratiate one’s self with power rather than go down swinging in a rigged fight.”

And he was talking about those thought to be the most conservative of Indiana’s political players. That understood, careless tax policy may be only a symptom of Indiana’s troubles; the real problem is an excuse-prone leadership that places the interests of a government regime over those of its citizenry. — Craig Ladwig

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Comments...

  • Property taxes are imposed on both real and personal property in Indiana and are administered by the Department of Local Government Finance. Property is subject to taxation by a variety of taxing units (schools, counties, townships, cities and towns, libraries), making the total tax rate the sum of the tax rates imposed by all taxing units in which a property is located. However, a “circuit breaker” law enacted on March 19, 2008 limits property taxes to one percent of assessed value for homeowners, two percent for rental properties and farmland and three percent for businesses.

    • …and a three-percent annual property tax equates to about a 57% excise tax on the purchase of the property, as I stumbled into recently from a Journal of Finance paper of a presentation in Detroit some forty years ago. I view that as a significant barrier to investment. .

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