STATEHOUSE – For many, Indiana property taxes–which are assessed, raised and spent by units of local government–are at unreasonable, even distressing levels. So much, that some argue for their permanent elimination through a constitutional amendment. Currently, all 50 states rely on property taxes; however Florida, Georgia, South Carolina and Pennsylvania this year made efforts to completely eliminate them. All failed. So far, evidence suggests this elimination approach appears unsound. However, Indiana lawmakers are carefully considering if Indiana could and should repeal property taxes.
Our first consideration is the amount of revenue needed to replace property taxes. Today in Indiana, that amount is $5.8 billion. Given that a penny on our sales tax raises $900 million, the sales tax would have to be raised 6.2% beyond our current 6% to replace property taxes. This risks putting Hoosier merchants competing with neighboring states out-of-business and giving internet sellers a 12.2% competitive advantage over our bricks-and-mortar retailers. Similarly, to replace all property taxes – residential, commercial, industrial and agricultural – Indiana’s income tax would have to be raised by 4.67% to 8.07%. Some combination might be achievable, but close analysis of all side effects needs to be made on behalf of Indiana businesses and workers. One elimination proposal, supported by Advance America’s Eric Miller, raises sales tax by 2% and income tax by 1%, but clearly those two steps raise only half the monies needed to replace property taxes.
Changing Indiana’s constitution requires the amendment pass two separately elected legislatures and be approved by voters – a process that will take at least four years. I doubt taxpayers can and will wait that long for reform.
Fortunately, we have more immediate opportunities before us to begin solving this problem:
•Through October 1, each county has the ability to adopt a 1% local option income tax, which if directed to property tax relief will reduce homeowners’ property taxes by more than 50% beginning next year. This is permanent, substantial relief for all homeowners – especially senior citizens.
•A 2% “circuit breaker” for homeowners goes into effect in 2008, insuring their property taxes will be no more than 2% of the gross assessed value of their home.
•A new Capital Projects Review Board with elected citizen representatives is being established in each county to thoroughly review costly government construction projects which traditionally drive property taxes.
Clearly, other reforms are needed: a major overhaul of assessing, protections for rental properties, senior and disabled citizens, and realignment of state and local responsibilities to their respective budgets. Indiana’s Tax and Fiscal Policy Commission is working on these and other issues. Additional important work will be completed by Gov. Mitch Daniel’s Blue Ribbon Panel to restructure and streamline local government. All taxes are a result of government spending; high taxes are a result of high spending. This base issue must be addressed.
Perhaps property taxes can be eliminated. This option should and will be given full review in our August 27 commission hearing. Our goal is to develop a tax system that is fair, allows all to pay a fair share but requires no one to overpay, encourages restraint in government spending and produces a stronger economy for Hoosier investors and workers.
Sen. Luke Kenley (R-Noblesville) is chairman of the Commission on State Tax and Financing Policy, which is holding a series of hearings studying the property tax issue. The commission’s next meeting was 1 p.m. Monday, August 27, in Room 404 of the Statehouse. On its next agenda was a discussion about the feasibility of eliminating property taxes.
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