Repeal Of Property Tax Might Be OK, But...
July 28, 2016 at 4:25 p.m.
By Gary [email protected]
You may remember Miller as a failed Republican gubernatorial candidate.
He lost in the 2004 primary election to Mitch Daniels and the rest, as they say, is history.
He won't be running in the 2008 primary election.
He told the Indianapolis Star he wants to "spend my time and energy to repeal property taxes so people can own their own home, business and farm."
His "repeal property taxes" road show is gaining traction.
Of course, if it wasn't for the screwy mess the legislature and the courts have made of the Indiana property tax system, Miller wouldn't have much to go on.
But the truth of the matter is that the Indiana property tax system is a screwy mess, and Miller's proposal to repeal property taxes via a constitutional amendment might not be all that bad of an idea.
I agree with Miller's basic premise that property owners should be free of governmental incumbrance.
If you go out and buy a pair of shoes, you get to keep the shoes. They're your shoes.
But if you go out and buy a house in Indiana, it's really never fully yours. Even after you've paid it off and burned your mortgage, the government still has a lien on it.
You have to pay the property taxes, and if you don't, the government can and will take your property from you.
That has always seemed somehow immoral to me, but hey, we have to fund the schools and the cops and the firemen, don't we?
But Miller says there's a better way, through sales and income taxes.
And while I tend to agree, I am always worried about unintended consequences.
Miller says that a 2-percent increase in the state sales tax and a 1-percent increase in the state income tax will make up the difference if property taxes are repealed.
I'm not so sure.
The state collects between $6 billion and $7 billion a year in property taxes.
Each penny of sales tax collected raises around $950 million.
Each penny of income tax raises around $1.4 billion.
(O.K. I feel compelled to point something out at this point. Miller's material says he wants to "increase the sales tax 2 percent and the income tax 1 percent." Well, I suppose 2 cents per dollar is a 2 percent increase. But the sales tax right now is 6 cents on the dollar. So, in my view, raising a tax from 6 to 8 cents per dollar is not a 2-percent increase. It's a 33.3-percent increase. If at 6 cents per dollar the state is pulling in $5.7 billion in sales tax, at 8 cents per dollar, the state will reap $7.6 billion. That's a 33.3-percent increase in revenue. The current income tax is 3.4 percent. Increasing it to 4.4 percent is a 29.4 percent increase with a resultant 29.4 percent increase in income tax collections. Guess 2 and 1 percent sounds better, though.)
Miller's plan of 2 cents worth of sales tax increase and 1 cent of income tax increases adds up to only about $3.4 billion, or roughly half of the nearly $7 billion in property taxes currently collected.
The rest, he says, will come from savings in administrative costs of collecting property taxes and by controlling state and local government spending.
I'm highly skeptical about that.
Taxing units funded by property taxes - schools, cities, towns, etc. - already have budgets based on collecting a certain amount of property taxes.
If that money isn't fully replaced, the taxing unit will either have to find alternate sources of funding or cut services. How are schools and local governments going to be able to control spending to the tune of $3.4 billion?
It ain't gonna happen.
So if property taxes are repealed - and it looks as if there is a pretty significant groundswell of support to do just that - look for increases in the range of 3 cents on the dollar for both sales and income taxes to cover the lost revenue.
Those would be increases of 50 and 88 percent, respectively.
The whole property tax debate has been about shifting of burdens.
When the state removed the inventory tax, it shifted the burden to homeowners. When it was decided that farm ground would be assessed at $880 per acre, it shifted the burden to homeowners. When assessments were ordered to be market based, it shifted even more of the property tax burden to homeowners.
That's a lot of burden shifting and it has put Indiana residents at a tipping point with regard to property taxes in this state.
So now we are at a crossroads. Do we shift the burden yet again by eliminating property taxes?
Where would the burden go?
This is where the unintended consequences come in.
If you start taxing income and sales, it affects everyone, not just property owners. So, suddenly, the single mom or senior citizen on a limited income sees income decreasing and purchases costing more.
Ah, but her landlord, who no longer has to pay property taxes, will pass the savings along to his tenants, right?
Hmm, probably not.
Another intended consequence has the potential to hit our county pretty hard.
Lots of people who don't live in Indiana year-round own high-dollar, highly taxed property around our lakes. Their income is taxed in another state and they buy most of their goods in another state. Kosciusko County loses big in that scenario.
Also, several companies operating here and paying property taxes on their manufacturing facilities are incorporated in another state. Is that income going to be taxed here when property taxes go away?
As I said earlier, I tend to agree with Miller that property taxes are inherently unfair and I would like to see them go away.
But I think our elected officials need to really go slow at this and analyze it fully - including all the potential unintended consequences.
If they don't, a very taxing situation in Indiana (pun fully intended) could go from bad to worse.[[In-content Ad]]
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You may remember Miller as a failed Republican gubernatorial candidate.
He lost in the 2004 primary election to Mitch Daniels and the rest, as they say, is history.
He won't be running in the 2008 primary election.
He told the Indianapolis Star he wants to "spend my time and energy to repeal property taxes so people can own their own home, business and farm."
His "repeal property taxes" road show is gaining traction.
Of course, if it wasn't for the screwy mess the legislature and the courts have made of the Indiana property tax system, Miller wouldn't have much to go on.
But the truth of the matter is that the Indiana property tax system is a screwy mess, and Miller's proposal to repeal property taxes via a constitutional amendment might not be all that bad of an idea.
I agree with Miller's basic premise that property owners should be free of governmental incumbrance.
If you go out and buy a pair of shoes, you get to keep the shoes. They're your shoes.
But if you go out and buy a house in Indiana, it's really never fully yours. Even after you've paid it off and burned your mortgage, the government still has a lien on it.
You have to pay the property taxes, and if you don't, the government can and will take your property from you.
That has always seemed somehow immoral to me, but hey, we have to fund the schools and the cops and the firemen, don't we?
But Miller says there's a better way, through sales and income taxes.
And while I tend to agree, I am always worried about unintended consequences.
Miller says that a 2-percent increase in the state sales tax and a 1-percent increase in the state income tax will make up the difference if property taxes are repealed.
I'm not so sure.
The state collects between $6 billion and $7 billion a year in property taxes.
Each penny of sales tax collected raises around $950 million.
Each penny of income tax raises around $1.4 billion.
(O.K. I feel compelled to point something out at this point. Miller's material says he wants to "increase the sales tax 2 percent and the income tax 1 percent." Well, I suppose 2 cents per dollar is a 2 percent increase. But the sales tax right now is 6 cents on the dollar. So, in my view, raising a tax from 6 to 8 cents per dollar is not a 2-percent increase. It's a 33.3-percent increase. If at 6 cents per dollar the state is pulling in $5.7 billion in sales tax, at 8 cents per dollar, the state will reap $7.6 billion. That's a 33.3-percent increase in revenue. The current income tax is 3.4 percent. Increasing it to 4.4 percent is a 29.4 percent increase with a resultant 29.4 percent increase in income tax collections. Guess 2 and 1 percent sounds better, though.)
Miller's plan of 2 cents worth of sales tax increase and 1 cent of income tax increases adds up to only about $3.4 billion, or roughly half of the nearly $7 billion in property taxes currently collected.
The rest, he says, will come from savings in administrative costs of collecting property taxes and by controlling state and local government spending.
I'm highly skeptical about that.
Taxing units funded by property taxes - schools, cities, towns, etc. - already have budgets based on collecting a certain amount of property taxes.
If that money isn't fully replaced, the taxing unit will either have to find alternate sources of funding or cut services. How are schools and local governments going to be able to control spending to the tune of $3.4 billion?
It ain't gonna happen.
So if property taxes are repealed - and it looks as if there is a pretty significant groundswell of support to do just that - look for increases in the range of 3 cents on the dollar for both sales and income taxes to cover the lost revenue.
Those would be increases of 50 and 88 percent, respectively.
The whole property tax debate has been about shifting of burdens.
When the state removed the inventory tax, it shifted the burden to homeowners. When it was decided that farm ground would be assessed at $880 per acre, it shifted the burden to homeowners. When assessments were ordered to be market based, it shifted even more of the property tax burden to homeowners.
That's a lot of burden shifting and it has put Indiana residents at a tipping point with regard to property taxes in this state.
So now we are at a crossroads. Do we shift the burden yet again by eliminating property taxes?
Where would the burden go?
This is where the unintended consequences come in.
If you start taxing income and sales, it affects everyone, not just property owners. So, suddenly, the single mom or senior citizen on a limited income sees income decreasing and purchases costing more.
Ah, but her landlord, who no longer has to pay property taxes, will pass the savings along to his tenants, right?
Hmm, probably not.
Another intended consequence has the potential to hit our county pretty hard.
Lots of people who don't live in Indiana year-round own high-dollar, highly taxed property around our lakes. Their income is taxed in another state and they buy most of their goods in another state. Kosciusko County loses big in that scenario.
Also, several companies operating here and paying property taxes on their manufacturing facilities are incorporated in another state. Is that income going to be taxed here when property taxes go away?
As I said earlier, I tend to agree with Miller that property taxes are inherently unfair and I would like to see them go away.
But I think our elected officials need to really go slow at this and analyze it fully - including all the potential unintended consequences.
If they don't, a very taxing situation in Indiana (pun fully intended) could go from bad to worse.[[In-content Ad]]
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