Morton J. Marcus, an economist, writer, and speaker formerly with the Kelley School of Business at Indiana University
This is why I like Mitch Daniels. Speaking about his property tax program he said, "When Indiana acts this time, and act we must, our steps must be fair, far-reaching, and final," Look at that alliteration ... "fair, far-reaching, and final". Who else in public life gives us sentences like that?
Look at his idealism: "fair, far-reaching, and final." Our state is known for its persistent lack of fairness, its short-sighted special interest legislation, and its never-ending tinkering. Mitch thinks he can overcome this history.
The Governor's property tax program is an efficient political statement that apportions goodies to everyone. Homeowners are given the most favored treatment because they constitute a majority of voters. As the Governor puts it: "There's something special about homeownership and we want to protect it and promote it,"
For conservative Indiana this is a remarkable statement. Is it government's job to jab its big feet into our investment decisions? Should Indiana favor one form of private investment over another? Isn't that excessive government intrusion into our affairs?
Under the Governor's plan homeowners would see their property taxes capped at one percent of assessed value. The Daniels folks tell us that today "55% of homeowners pay property taxes in excess of 1% of their home's value." That's what I like; these folks consider the facts.
Yet, what makes one percent of assessed value 'fair'? Why is it fair for rental residential property to bear a two percent cap and commercial/industrial to suffer a three percent cap? If we are taxing property, why discriminate by use? Is the lawn of an owner-occupied property more precious to us than the lawn in front of a dentist's office?
To ensure that these inequities endure, the Governor seeks a Constitutional amendment to preserve the details of this proposal. Such changes would give legitimacy to the long-standing discriminatory violations of the Indiana Constitution passed by previous General Assemblies.
Some people who don't know the meaning of tax incidence assert they know businesses can pass on higher taxes to customers, but that homeowners are stuck with whatever higher taxes they pay. Believe me, no reputable economist will assert anything but ignorance about who bears the ultimate burden of a tax.
If sales taxes rise to cover lower property taxes, consumers will buy less and/or pay more for what they get. If they buy less, both the consumer and the retailer, her employees as well as his suppliers, will all be unhappy. But their unhappiness depends on how much they benefit from the lower property taxes.
How much less do you weigh when you take change out of your right pocket and put it in your left pocket? That's what is being proposed here: cut property taxes and raise both sales and personal income taxes. But wait, there is more:
The Governor's proposal (like proposals made by Democrats and Republicans for years) says we must cut local spending. Is our local public spending too high? Are our public schools too good for our children? Does the level of education over-qualify them for the future? Are our police and fire departments too well-equipped? Do we over spend on public health? Are our streets too clean and our sidewalks (if any) in decent condition?
How much local spending is mandated but not funded by the state? Yes, it's always easy to blame the locals, but then Indiana, for the past 40 years, has expressed contempt for local representative government. Mitch's proposals are fully within this tradition.
First, the Tax Board in each county, not directly elected by the people, is to sit as a super-governmental entity, empowered to review and approve or reject the spending programs of all government. This is not new. It's a question of emphasizing the word "all" and making sure that these boards have teeth. But why is their judgment superior to that of the elected representatives who propose the spending?
Second, the Governor wants to keep local spending increases from exceeding the six-year growth rate of personal income in a county, unless approved by the voters. This presumes that our needs are related to our collective income and its past growth. It runs the danger of government spending trailing needs because the public rarely sees beyond its collective noses. We elect officials to study needs and examine alternatives with an eye to the future. Referendums often are based on transitory, even hysterical, swings of public opinion, not fact.
Similarly, the Governor wants "significant" capital expenditures approved by public referendum. Once again representative government is demoted and public ignorance is elevated. Remember the writings of the founding fathers in the Federalist Papers? Perhaps back then there was more concern about good government and less fuss about property taxes.