Indiana voters have now seen three separate property tax plans from candidates running for governor and lieutenant governor. All three offer insights into some of the fiscal philosophies of the candidates, the quality of their policy development process and the respect they have for Hoosier taxpayers.
The Libertarian — Donald Rainwater/Tonya Hudson — property tax plan is not really a tax plan. Their proposal is to eliminate all residential property taxes, and instead tack on 7% sales tax to your home. I view their proposal as political posturing against the promiscuous use of tax abatements and tax-increment financing.
If you are tired of huge tax breaks for large companies, Indiana’s Libertarian Party is focused on your concerns. But their plan fails to consider things like the need to fund police protection, fire departments or provide heat to school buildings in winter.
The Republican — Mike Braun/Micah Beckwith — plan seems to have done two things. I say “seems” because it went through five major changes in three days after it was first announced. So, nailing down facts is not a trivial task.
The first thing this plan offers is the addition of a much larger exemption for homeowners. While this sounds alluring, it really has little or no effect on individual tax liability. Property taxes in Indiana are based on local government budgets, with caps placed on the value of the property, not the exemptions. So, for most Hoosiers, the first version of the Braun/Beckwith plan (or Beckwith/Braun plan according to the lieutenant governor candidate’s social media) had little or no effect on tax liabilities for most homeowners.
Later iterations of the tax plan, a result of major criticism, rolled back property tax obligations to 2021 levels, or that of the original plan, whichever was lower. The tax plan also cut growth rates for taxes on seniors and veterans.
The real problem with this tax plan is that it did one of two things. It either cut local government tax revenues or it shifted taxes to other taxpayers — primarily farmers and businesses. Within farming communities, the property tax shift was enormous. Some farmers would see 70% tax increases.
The best way to summarize the Braun/Beckwith tax plan is that rural communities would see huge increases in farm taxes. Urban places would see big cuts in public services because of property tax caps, and suburban communities would need to pass school referendums to maintain bus service.
Several cities performed initial assessments of the revenue impact of the Braun/Beckwith plan. Elkhart reported double-digit cuts to police department, calling this the “defund the police plan.” That’s probably typical.
Columnist and writer Abdul-Kim Shabazz quipped, “which had the worst rollout—the Hindenburg, the Titanic or the Braun/Beckwith tax plan.” I’ll wait for the movie.
The final plan was released by the Democrat team of Jennifer McCormick/Terry Goodin. They propose cutting property taxes by roughly the same amount as the Braun/Beckwith plan, but doing so in a way that doesn’t shift tax liability to farmers, renters or businesses. They also ensured that local governments — schools, libraries, police and fire departments, and parks — would not face deep revenue losses.
Their plan has two distinguishing features. The first was that almost every element was analyzed by the Legislative Services Agency, with much of it taken from existing property tax proposals the legislature has been working on for the past 18 months. This means we know how much savings are to taxpayers, and how much and to whom the lost tax revenue flows.
The second key feature of the McCormick/Goodin plan was that most of the revenue losses were borne by state, not local government. They accomplished this by allowing taxpayers to deduct more of their property taxes from their income taxes, rather than simply cutting city, county and school budgets. Notably, the Democratic plan actually caps property tax growth for individual taxpayers at a reasonable level.
Let me summarize these plans: The Libertarian tax plan is a protest, not a tax plan. The Republican plan is a campaign talking point, not a tax plan. The Democratic tax plan is a good start on an honest, thoughtful way to deal with the property tax shock we just went through.
There are three problems with each of these tax proposals. The first is that Hoosiers are not overtaxed. Local government employment per resident in Indiana is lower now than at any time for which we have data — at least a half-century. We pay low property taxes.
Second, the huge property value spikes that accompanied COVID-19 are behind us. Property values across Indiana peaked a year ago, and are now receding. Most of us will see lower property taxes next year regardless of legislative action.
Finally, and most importantly, Indiana’s economic and population growth are stymied not by high taxes, but by low-quality public services. The debate in Indiana should be about how to improve schools, reduce crime, cut health care costs, send more kids to college, and make more Hoosiers cities and towns places where young people want to build a life.
That is what we should be focusing on, not saving the typical Hoosier family $300 a year, which is what the GOP and Democratic plans might accomplish.
Michael J. Hicks is the director of the Center for Business and Economic Research and an associate professor of economics in the Miller College of Business at Ball State University. Send comments to [email protected].
