Advice to Lawmakers: First, Do no Harm

December 4, 2005

Editors: Available for publication on Organization Day, Nov. 18
700 words

INDIANAPOLIS — When Indiana lawmakers convene today (Nov. 18) for a mini-session on property tax relief, they¹ll get an earful from Jeffery J. Cole and other unhappy Hoosiers.

Cole, of Elwood, is Indiana state coordinator for the We the People Congress, a national group dedicated to limited government and lower taxes. Cole has a permit for a Property Tax Abolishment Rally from 6 a.m. to 6 p.m. He¹s counting on thousands of people joining him at the Statehouse to demand the repeal of Article 10, Section 1 of the Indiana Constitution

Cole believes it is impossible for the Indiana General Assembly to do what Article 10 directs it to do, which is "provide, by law, for a uniform and equal rate of property assessment and taxation" based on a "just valuation for taxation of all property."

It¹s a point well taken. The 2003 reassessment of property, ordered by the courts in a move to market-based valuation, has hardly brought the fairness to the system that folks had hoped. Hundreds of households have been faced with dramatic tax hikes. And houses of comparable resale value in different neighborhoods still have dramatically different tax bills based on a myriad of factors, an inequity not unlike the one that caused disgruntled property owners to challenge the state"s previous property tax system in court.

Although few lawmakers will take Cole¹s protest seriously — how on earth would the state make up the $6 billion lost by abolishing the tax? — at least he¹s proposing something simple.

In contrast, proposals for tax relief being floated by lawmakers promise to add more confusion and complexity to a system that is already convoluted.

House Democrats have proposed 15 separate measures to be considered over the next few weeks. One of them, an extension of the filing deadline for homestead credits and other deductions, has bipartisan support and needs immediate attention so it can be implemented in December. But most of the others represent substantive policy changes that merit more thorough debate than a mini-session can offer.

For example, House Democrats wants to:

€ Increase the homestead deduction from $35,000 to $44,000 in 2004 to cushion the effects of reassessment.

€ Create a new deduction of $4,500 for houses 50 to 200 years old and a $9,000 deduction for those 100 years or older.

€ Roll back local government budgets that led to higher-than-expected property tax increases in 2003.

On the surface, these sound like good ideas. But they all would aggravate one of the biggest problems with Indiana¹s property tax system. It¹s a hodgepodge. Between credits and deductions, levies and tax rates, it¹s hard for taxpayers to examine their bills and know exactly what they are paying, to which unit of local government and why.

Further, most of the suggestions would have considerable financial impact at a time when local government budgets are tight. At a recent Senate hearing on the subject, Franklin Mayor Norman Blankenship asked lawmakers what areas of the budget he should cut to satisfy their concerns. It¹s a good question.

When lawmakers gather in November, it¹s usually to get organized and to start filing bills, not to debate major tax reform.

Lawmakers must not jump on politically popular Band-aids, especially considering that studies of the effects of 2003 reassessment are ongoing. The Indiana Fiscal Policy Institute is conducting one such study. The Indiana Policy Review Foundation (with which I am affiliated) is studying the relationship between property taxes and local control of government. Jeffery Cole has a survey going to see if it¹s possible to eliminate property taxes without having to make up the revenue elsewhere.

It¹s pretty obvious what is driving the rush to tax relief: a desire to be the first to score political points heading into an election year. Control of the Indiana House will be up for grabs again in the 2004 elections.

Gov. Joe Kernan and Senate Finance Chairman Lawrence Borst, R-Greenwood, have both cautioned against changing the system prematurely without knowing what the impact might be.

To put it another way, lawmakers in the coming session need to follow the familiar advice of Hippocrates: "Make a habit of two things: to help, or at least to do no harm."

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