Wednesday, May 16, 2007

What are they doing in Indianapolis?

One of the things that the local government's in Indiana have been asking for is the ability to raise more taxes on their citizens. Local spending is increasing far faster then inflation and local Government units want to ensure that they can keep increasing their spending.

Elected Indiana officials are pressured by their constituents because their constituents are tired of local Governmental units increasing their property taxes.

So for the last couple years there has been a large push to give local Governmental units more power to levy their own additional taxes.

This last session, at the very end, our Legislators passed a 100 page bill that drastically changes how Hoosiers will be taxed. This bill is complicated and is not completely understood yet.

Currently Indiana levies a 3.4% income tax. Currently each County can levy a variety of three different county income taxes (All supposedly designed to lower property taxes). Each County has its own local income tax rate. Allen County is currently 1%.

So currently residents of Allen County pay 4.4% in combined State and local income taxes.

Local Government will now be allowed to raise their local income taxes even higher in a supposed effort to reduce property taxes. Please keep in mind that we raised our sales tax from 5% to 6% in order to lower property taxes. Please realize that Indiana instituted three different local income taxes to reduce property taxes in prior years. None of these methods caused our overall property taxes to decrease; instead, they allowed local Governments to spend larger sums of money.

So our Legislature has passed another complicated bill that our Local Governments have to decipher.

The recent bill gives Local Government the following options:

1. Local Government generally raises the property tax levies by about 4% a year. Local Government can choose to not increase the property tax levy and can instead increase income taxes. If this option is chosen then the income tax would increase every year... I tend to be against this option since it will cause local income taxes to increase EVERY year. This will be a nightmare for accountants, business owners, those who calculate payroll taxes, tax preparers, etc.

2. Local Government can increase local income taxes up to 1% and use 100% of this revenue to lower property taxes. I am 100% in favor of this option and I think it should be implemented and I hope that our local officials increase income tax the full 1% and thereby lower our property taxes. There is only one thing lacking in this option and it is a major shortcoming. If a local Government chooses this option then I would like to see the property tax circuit breaker for that locality decrease to 1%. What I do not want to see happen is that we allow them to increase income taxes and then they will slowly allow property taxes to increase back to where they are now or higher... Based on past history this is what will happen over the next few years. It is what happened with the last Sales Tax increase and all three previous local income taxes... History tends to repeat itself.

2.a. If option two is chosen then the Local Governmental unit must decide whether to provide property tax relief just to homeowners or to everyone. Obviously the relief should NOT just go to homeowners, it should go to everyone.

3. I like to call this the Marion County option. This option was designed for Marion County. Marion County has a huge problem because they have overspent and have serious budget shortfalls. If a Local Governmental unit does both #1 and #2 above then they will be allowed to levy an additional local income tax of .25% to be used for Public Safety. Obviously I am against this. We are overtaxed as it is and the last thing we need to do is to give the Government more money. This is absurd and should not be seriously considered.

In Allen County the above decision will be made by the Fort Wayne City Council. Per the JG:
<http://www.fortwayne.com/mld/journalgazette/news/editorial/17223857.htm>

There are things to like in the above options and things to despise.

I like giving local governments a way to decrease property taxes by raising local income taxes as long as 100% of the income tax MUST be spent to lower property taxes. I dislike the fact that they are not lowering the property tax circuit breaker to 1% of assessed value like they should. I dislike the fact that they are allowing local Government the ability to raise local income taxes for "Public Safety."

Mike Sylvester

2 comments:

Jeff Pruitt said...

Let's be honest here. If they increase the income tax to "offset" property taxes then it won't be long before they just raise property taxes.

Anyone that believes introducing a new tax will somehow be revenue neutral or lower taxes is a sucker...

LP Mike Sylvester said...

Jeff:

I agree with you. That is why I support this as long as they lower the circuit breaker to 1%.

That would end up almost halving property taxes and that would be a good thing.

Mike Sylvester