Recession threat clouds property tax issues, Purdue economist says

BY BILL DOLAN, Times of Northwest Indiana 
bdolan@nwitimes.com

MERRILLVILLE | State legislators are struggling to provide property tax relief to most Hoosiers this year, but a threatened economic downturn could lead to expensive compromises.

"This is a most inopportune time to have a recession, professor Larry DeBoer, a Purdue University economist who advises the General Assembly on tax issues, said in a recent speech shown to local residents Monday at the Purdue Extension office in Merrillville.

DeBoer said an elaborate plan to reduce taxes for homeowners, renters and businesses depends on the state raising sales taxes and shifting its existing income tax revenues to take over the responsibility of meeting $3 billion in local school costs.

However, a recession is likely to reduce sales and income tax collections and leave schools with large revenue shortfalls.

That leaves the General Assembly and Gov. Mitch Daniels, who are crafting a property tax relief package, with the unenviable choice of forcing schools to reduce future spending or limiting property tax reductions, possibly to renters.

DeBoer said the property tax relief is aimed primarily at the state's 1.7 million homeowners.

"Sixty percent of homeowners are likely to get tax cuts of $100 or more," he said.

The plan generates the most relief for those with low income and high home value.

However, those low-income residents primarily living in apartments could see their overall tax burden increase by more than 5 percent since they are taxed more under the governor's and legislature's plans.

The General Assembly recently amended legislation to give low-income renters bigger tax subsidies, but DeBoer said a recession may force the legislators to give that amendment up rather than hurt school spending.

He said the biggest losers in the property tax plans are local government agencies outside schools, particularly in Lake County, which will see $247 million in property tax revenue disappear. He said that could be made up with a county income tax.

He said a recession may yet be averted and property tax relief could be spread far and wide, but legislators probably will have to make tax policy choices in March before the economy's eventual path is clear.