By Cate Charron
Indiana Business Journal
Business and agricultural leaders want more details on how an ambitious property tax relief plan for homeowners proposed by U.S. Sen. Mike Braun, the Republican candidate for governor, would affect commercial, industrial and agricultural property owners.
Braun’s lack of particulars about how local governments would make up for the potential loss of property tax revenue under his plan has caused some to raise concerns that the tax burden would simply be shifted to other types of property owners.
Commerce groups aren’t sounding the alarm just yet but are asking state lawmakers to carefully consider the implications of Braun’s plan.
“It’s really hard to take a position for or against an idea that has been presented,” said David Ober of the Indiana Chamber of Commerce. “As more detail comes out and as details firm up, I think that we’ll be able to come up with a position, but right now, we’re concerned about potential tax shifts.”
Braun’s plan is focused on lowering the property tax burden for homeowners by increasing the homestead deduction, capping property tax increases for homeowners and increasing voter participation in property tax referendums.
Under the plan, Hoosiers with an assessed home value over $125,000 could deduct 60% of their home’s assessed value for property tax purposes through a homestead deduction. Homeowners with an assessed value under $125,000 could use the 60% deduction, plus the current standard deduction of $48,000
What isn’t clear is how any tax revenue lost under Braun’s plan would be replaced and whether there is a plan to help financially support the local governments, law enforcement and schools reliant on those dollars.
When asked about the potential of businesses and farmers seeing tax rate increases, Braun instead focused on local government’s expenses, telling IBJ that the government should operate within taxpayers’ ability to pay for it.
Governments still would be able to raise more revenue, he said, but rather they would need to use referendums to receive voter permission to exceed certain caps or find other “innovative ways to raise revenue.”
“This was to do nothing other than to say that you’re going to have to live within certain constraints,” Braun said. “And if you want more, you’re going to have to be a little innovative.”
The tax proposal would need approval from the state Legislature before it could become law.
Lots of questions
Indiana University professor Justin Ross, a public finance economist specializing in state and local tax policy, said Braun’s plan still needs a good amount of fleshing out.
Two primary questions are whether the state will financially cover the lost local revenue and under what circumstances a voter referendum on property tax increases would be allowed under Braun’s policy proposal.
“It’s not something that we could easily predict whether it’ll be good or bad for any particular group or the state overall,” he said. “A lot of those details are not yet settled.”
Historically, Ross said the state often focuses on property tax relief for homeowners and farmers. On the local level, he said commercial taxpayers often will see relief through property tax abatements that offer serve as incentives for business expansion
Ober said it’s hard to project what the impact of Braun’s tax plan would be following an initial analysis. However, he said the plan will evolve over the next few months as it’s weighed by a state tax task force on taxes and by the Legislature.
Historically, he said, the state chamber has expressed concerns over policies similar to this one when there is potential for the cost of local government to be shifted through higher tax rates to business taxpayers.
“We would urge caution as these ideas get flushed out to really concentrate and think through the impact and be very deliberative and intentional about how relief is provided,” Ober said. “Because we certainly don’t want to cause any negative impact on the state economy and the people who are running their businesses and producing those economic gains.”
If there is a shift that requires commercial property owners to pay more, Ober said that will have an effect on businesses’ bottom line and will impact different companies in a range of ways, such as higher rent payments or delayed investments.
As details solidify, Ober said, he’ll be on the lookout for deeper analysis from the Department of Local Government during next year’s legislative session, which he anticipates will provide more specific dollar amounts and estimated impacts.
Regardless of who becomes governor, Ober said, he expects some legislative proposal similar to Braun’s will be filed.
Braun’s Democratic challenger Jennifer McCormick has called his tax plan “irresponsible,” saying it would result in cuts to local government services.
Libertarian Donald Rainwater’s plan would limit property taxes to 1% of the purchase price of the property or the assessed value, whichever is lower. Also, the residential property tax would sunset after its owners have paid a total of 1% of the purchase price or the assessed value, whichever is lower, for 7 years.
Andy Tauer, policy director at the Indiana Farm Bureau, said his members’ number one question about Braun’s tax plan are how farmers fit in.
“One of the things that we want to do — working with the Braun camp and others — is start to unpack that a little bit more and get to get a little bit deeper into the analysis on cause and effect,” Tauer said.
Tauer said the Farm Bureau will work with Braun’s team and other candidates to ensure that farmers and rural voices are included in the conversation. Farm Bureau members want property tax relief, too.
“There’s gives and takes if we reduce property tax on farmland,” he said. “What are those impacts on other community services, and so again, trying to strike that right balance.”
Turning to the tax task force
The timing of the release of Braun’s plan also is likely to spur more discussion by Indiana General Assembly’s State and Local Tax Review Task Force, which is studying tax issues this summer.
Ober said Rep. Jeffrey Thompson, House vice-chair of the summer tax task force, has so far focused more on the expenditures of local government rather than home assessment value or the impact on taxpayers. He expects this plan will generate more discussions about the tax burden on residential real estate.
“This is a starting point,” Ober said. “This is another idea that will hopefully generate some conversation within the tax task force, especially since the task force seems to be focused on more local government expenditures and property tax in general.”
Ross said another conversation point has been that Braun’s plan in part deviates from typical tax policy because it targets additional relief based on taxpayer demographics, rather than property classes. Braun wants to cap property tax bill increases to 2% for seniors, low-income Hoosiers and families with children under 18. Tax bill increases would be capped at 3% for everyone else.
