Morton J. Marcus, an economist, author, and speaker, formerly with the Indiana University Kelley School of Business
It's a beautiful sunny Hoosier day and I am delighted to see Faye of the Forest perched on my deck railing.
"Hey, Faye," I say, "what's up?
"My property taxes are up," she says with irritation in her voice but a tear in the corner of her eye. "You know my little tree house. I've lived there for years and the taxes keep going up. Why? What is going on?"
"I hate to say this," I say, "but the explanation gets more complicated every year as the General Assembly finds new ways to avoid its responsibilities.
"Let's start at the beginning. Local governments need money to do their jobs. They run the schools and libraries, the police and fire departments, the garbage collection and snow removal services. They run the courts and maintain our property records. And they do much more than that because over the years we decided that we wanted those services."
Faye sniffs back a sniffle, but continues to listen. "All the things we want keep getting more expensive," I say. "We want better schools, we want faster response times from the ambulance service, we want and we want.
"The local governments (counties, townships, cities, towns, school districts and more) figure up how much money they need to do the jobs we want. Then they subtract the money they will get from the state based on the number of school children or the local income tax receipts, or whatever complex formula applies. What's left to be funded is the levy or revenues to be raised by local property taxes."
"OK," Faye says but her eyes are beginning to glaze over.
"Every tax," I say, "has a base on which the collections are made. For example, you go to the grocery and buy $10 worth of taxable goods and they add on six percent sales tax to that amount so you end up giving the clerk $10.60. You notice I said 'taxable goods' because the state decides what it will and will not tax.
"The same is true with property taxes. This year the state is no longer taxing business inventories. That lowers the local tax base and means that to raise the same amount of money, tax rates have to rise. So your taxes go up.
'Then the state did not require all counties to adjust the assessed value of property used for agricultural, commercial and industrial purposes.
"Yet they did allow local assessors to adjust the value of residential property. That process is called 'trending'. If you live in a neighborhood where sales values are five percent higher than the last time an assessment was made, then your property sees an increase in its value.
"See what's going on? Residential property is becoming a larger part of the total assessed value of all property in the community and all home owners end up with higher taxes."
"Of course legislators will tell you that although they reduced the homestead credit from 28% to 20%, which raises your tax bill, they did raise your homestead exemption from $35,000 to $45,000 which lowers your assessed value and your tax bill. For those with a $2.50 tax rate and home assessed at $50,000, there is a reduction in the property tax of $170. For someone with a home valued at $135,000 or more, taxes rise. These numbers would vary with local tax rates. But don't forget, your legislators also promise that you'll get a refund check sometime in the future.
"But is it fair?" Faye asks.
"What would be fair?" I ask in response. "Should property taxes be based on services received? If you don't have children in school, put out very little garbage, and don't have a fire at your house, should your taxes be reduced? Or should you pay for these services because they help create a safer and more civilized community?"
"All I want is to live quietly in my tree house," Faye sighs.
"Perhaps," I pursue the issue, "you think that government services should be financed by an income tax only, that the 'ability-to-pay' should by the guiding principle."
"Too much," Faye cries out. "It's all too tangled like the vines in the forest, vines that can kill the very trees that make the forest desirable in the first place."
"Stay awhile," I say. "Have a drink."
"Nothing alcoholic," Faye says, "I have to swing home."