Thursday, October 25, 2007

Mitch Daniels property tax plan is a mixed bag

There are a lot of things to like about the property tax plan and there are alot of things to dislike about the plan. Lets look it at:

1. Capping residential property taxes at 1% of assessed value. I like this; however, they are still keeping a $45,000 homestead exemption in place and this should be abolished.

2. Raising the state sales tax from 6% to 7%. I am ok with this; however, we raised sales tax from 5% to 6% a few years ago to lower property taxes and look at what happened.

3. Shifts to the State 100% (State already had 85%) of the cost of operating schools and shifts to the State 100% (State already had 20%) of school transportation costs, shifts all of the child welfare costs to the State, and ends local government tax credits from the state. This is a mixed bag. I do not think the State should cover the local school costs at all. I do think the State should fund all of the child welfare programs they mandate and I really want them to end the property tax credits... This will help split the local government from the State and it will help prevent them from finger pointing at each other when taxes go up...

4. Caps rental property taxes to 2% of assessed value. This is utterly stupid. Rental properties already do NOT get a homestead credit. This means that overall those who own rental properties will pay more then double the property taxes of a homeowner who owns and lives in a residence of the same assessed value.

5. Caps business property taxes at 3% of assessed value. This is really, really stupid. Indiana has lost a lot of high-paying jobs and desperately needs to attract new businesses. If businesses have to pay 3% of their assessed value in property taxes (PLUS personal property taxes) Indiana will have one of the higher property tax rates for businesses in the country and this will make it hard to attract new businesses and hard for our existing businesses to operate. Furthermore this will make tax abatements even more critical and will hurt the small businesses who just cannot get tax abatements.

6. Adds a homestead deduction of 35% ON TOP OF the existing homestead credit of $45,000 in 2007. Once again this is really un-necessary. All this will do is allow even more people with lower value homes to pay less then the 1% cap...

7. Eliminates elected township and county assessors and creates a single appointed assessor in each County. This is one of the things I like about the plan. An assessor is a professional responsible for valuing property and complying with State law. They should not be elected and they should not be affiliated with a political Party.

8. The plan limits growth in local spending to growth in a counties average personal income over a six year period. This is a great idea.

9. The plan requires all significant local construction projects to a public referendum. This is also a great idea.

One question I have about the plan is how would if affect agricultural property? If anyone knows the answer to this please post it.

Mitch Daniels plan is a good starting point. I would change the following:

a. The homestead exemption should be eliminated and the 35% newly proposed homestead deduction should be removed. All residential homeowners should just pay 1% of the assessed value of their house and all exemptions should be removed. Lets keep it simple and fair.
b. Rental properties, agricultural land, and businesses should be taxed at 1% of assessed value as well.
c. To do the above I would raise sales tax another .5%.

WHAT DO YOU THINK?

Mike Sylvester

6 comments:

Jeff Pruitt said...

Mike,

I agree this is a good starting point. In your report you seem to think that everyone will be automatically taxed at the cap. Just because the cap is 3% doesn't necessarily mean you will be taxed at 3%. Having said that, I would agree that it's inevitable it would reach the cap.

The referendum is a fantastic idea. I would like to see all major projects, including those in a TIF, be held to the referendum standard. I think we should advocate for that detail. Having to put up a $150 Million bond to bring a remonstrance is simply undemocratic.

Another change I would like to see is the use of real circuit breakers (taxes tied to income) on top of the caps - although I might set the cap at 2% in this case.

LP Mike Sylvester said...

Jeff:

I took a glance at the numbers from the State budget and I can ensure you that the following would happen if his plan were passed as is:

1. All residential property would hit the 1% cap EXCEPT property worth just a few thousand dollars.

2. All rental proeprty would hit the 2% cap UNLESS it was assessed at a low number.

3. I agree that not all business property would hit 3% the first year; however, it would happen pretty darn quickly and it would hurt Indiana businesses big time.

Mike

J Q Taxpayer said...

Mike,

You got me thinking. Some great points to be concerned about. It is good to have someone on the frontend "teaching" us, because we are going to need help in understanding all of this.

Once the city elections are over I will be picking your brain to learn as much as I can.

I may not end up with you 100% of the time but at least I feel I will get a full open answer from you.

Thanks again for your posting. Keep us infomed.

Anonymous said...

Higher sales tax tent to stagnate commerce and to increase the underground economy, thus leading to higher corruption and decreased morality. Not to mention that it is a burden for the poor who are treated similar to the rich folks, but has much less money to spend.
Please lookup consequences of higher sales tax in places like FL and NH or of disaster 20-25 % VAT in Europe.

Greg McClain, Editor - Fort Wayne Sentinel said...

The plan is indeed a mixed blessing. However, to shift the tax burden from one source of revenue to another source of revenue is not true tax reform - which is what we actually need, not just property tax reform.

The plan is a good starting point - but it needs plenty of work. We need to find a better solution for business property owners and rental property owners.

Overall, while the plan has ups and downs, I do not believe it is sound enough that if I was a state rep or senator I would support it.

There is no serious discussion with these state officals in mandating state and local spending in which is a major factor in any improvement.

J Q Taxpayer said...

Greg,

I have been troubled for years about the taxing of business equipment.

My issue is with taxing business equipment setting in a building.

The taxing system hurts the guy trying to produce a physical product. Yet, a company developing software only pays for a computer. Both bring money into the city and employ people. I do not see this as a good building block for us.

Today, a machine in a factory can cost well in excess of $500,000 and have one operator. Yet a software person may be setting at a $5,000 computer building his product. Is the taxing system fair to both of these? I think not.