Kirk Johannesen, The Republic
johannesen@therepublic.com
Gov. Mitch Daniels' proposal for long-term property tax reductions received mixed reviews from economists and lawmakers with tax backgrounds.
Most say Daniels' ideas need closer examination
but provide a good starting point for discussion.
State Rep. Milo Smith, RColumbus,
said Daniels' proposal doesn't overreact to taxpayers' frustrations.
The spirit of the governor's plan, to make local government more efficient and shift some locally funded public services to the state, is worth considering, said Jerry Conover, director of Indiana Business Research Center at Indiana University.
State Sen. Greg Walker, R-Columbus, said nothing in the plan stifles the economy.
However, economist Morton Marcus believes the governor's ideas are misguided.
"Daniels' proposals mollify the voters without any concern for the economic necessities of the state," Marcus said.
No statistics have been presented to show that states without property taxes are in better shape economically than states that rely on property taxes, such as Indiana.
The problem was that property in some areas had been grossly undervalued.
"There is no evidence there is anything wrong with the property tax system, or that homeowners are overburdened by property taxes," Marcus said.
Property vs. sales tax
Smith said property taxes provide a stable, predictable source of revenue and help people quantify how much they pay to a local government.
While a sales tax increase would be used to reduce property taxes, how the reduction would be applied is unclear.
Marcus said sales tax generated in one county could be used to lower property taxes in another county.
"It's a shell game," he said.
Relying on sales tax to fund local government carries risk, Smith said.
A downturn in the economy would mean less spending by people, and less revenue generated to fund local government needs. Also, a downturn probably would lead to more unemployment and funding of social services.
"If funding local government is based upon needs, you have more social needs when the economy is slow," Smith said.
A sales tax increase presents risks for businesses located close to neighboring states. Indiana businesses could suffer if Hoosiers cross borders to buy big-ticket items in states with lower sales taxes.
Smith wonders if that would lead to more unemployment and people on welfare.
However, Conover thinks a 1 percent increase would not increase a bill so dramatically that people would notice.
"A rate hike of this magnitude has already been experienced in some areas of Indiana (the Indy metro area to fund the new stadium) without major shocks to the economy," Conover said.
A higher sales tax could have an unintended consequence, Smith said.
Increasing the sales tax to reduce property taxes could make it possible to pay more in sales taxes than property taxes in a year.
"We don't fully analyze the what-ifs," Smith said.
The idea of capping property tax increases also presents questions that haven't been answered, Smith added.
If a homeowner's tax bill is $1,100, but the 1 percent cap limits the bill to $1,000, how does a local government recoup the $100 in lost revenue?
"Having caps at all can limit the ability of local government to pay for inflation in the cost of public services in areas where property values are not rising," Conover said.
One way to generate additional funds, while using a sales tax increase to reduce property taxes, is to remove sales tax exemptions on some items and tax some services, Walker said.
This revenue could take the place of property taxes, Conover said.