As this year’s short legislative session comes to a close, I want to recap the alternative property tax proposals that have been offered.  I should probably begin with the problem.

Though Hoosiers pay less in state and local taxes than most Americans, the growth in state and local tax bills have been way out of sorts with income growth.  Also, in some places property taxes are astoundingly high – and in the most expensive places, taxpayers are not getting anything like the value of public services they are paying for.  Sadly, the administration of Indiana property taxes is more costly and ineffective than any I have seen in the developed world. This is the genesis of the crisis.  

The first tax plan of the season was Advance America’s plan to eliminate property taxes.  Governor Daniels then offered a plan to cap property taxes at 1% for residents, 2% for rental property and 3% for other business.  The Joint Committee offered its own plan, as did Indiana Farm Bureau and Representative Orenlichter.  These plans offered less property tax reduction than did the first two.  In late February the Senate Democrats offered their own plan which introduced an income graduated property tax.  

Obviously, cutting property taxes significantly, means raising other taxes, and there are only really three options: income taxes, sales taxes and corporate taxes.  Advance America offered to increase sales taxes by 2% and income taxes by 1% (and included a third, as yet unnamed tax which would in effect be a doubling of corporate income taxes).  The Governor proposed a 1 percent sales tax increase as did the Senate Democrats February plan. Indiana Farm Bureau, Senator Orenlichter and the Joint Committee included both sales and income tax increases of one percentage point or less.  We certainly are blessed with choices, but some are better than others.  

I hesitate to again mention the unworkability of Advance America’s plan because it brought a hail of personal calumny I haven’t heard since I trained as an Army paratrooper.  But duty calls me to again point out that the plan utterly fails to consider the impact of the tax rates on consumers and businesses and glosses over a doubling of corporate income taxes among its other flaws.  Governor Daniels’ plan has raised the ire of the business community because of its three tiered rate cap, and cut significant revenues for some local governments.  Indiana Farm Bureau, The Joint Committee and Representative Orenlichter’s plans raise income taxes – which would effectively place Indiana in the highest income tax rates in the region.  The Senate Democrats’ plan to link homestead exemptions was innovative, but flawed in its levying of a huge marginal tax rate on income and incentivizing overinvestment in housing by the poor.    

None of the tax plans are perfect – I would have preferred a tax on services, but the medical and legal lobbies are just too strong.  But, as the session winds down, I think Hoosiers can be satisfied that a property tax fix is possible.