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Property Tax Relief?

Editorial: Property taxes are on the rise in Indiana, and three candidates vying to be the state’s next governor have now proposed greatly differing strategies for lowering your bills. The average Indiana property tax bill grew nearly 17% in 2023.

Republican U.S. Senator Mike Braun has pushed for increased homestead deductions for owner-occupied homes in a plan that critics say would sap local government and school districts of hundreds of millions of dollars in revenue. The first thing this plan offers is the addition of a much larger exemption to homeowners. While this sounds good, it 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 plan had little or no effect on tax liabilities for most homeowners.

The latest version 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 shifted was enormous. Some farmers would see 70 percent tax increases!

The best way to summarize the Braun 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 just to maintain bus service.

Democrat Jennifer McCormick proposed tackling the issue through income tax deductions borrowed from failed legislative attempts by Republican lawmakers, which would shift much of that burden to the state. McCormick’s plan includes capping property tax increases at 10%, combined with increasing the homeowner property tax deduction by 40%, increasing personal exemptions by 150% and increasing the renters tax deduction by 33%. All changes provide relief through income tax filings, as opposed to actually reforming the underlying system.

What McCormick proposes is to grant property tax relief through the income tax system, rather than restricting what local governments can raise or how they can raise money. Indiana already provides some property tax relief through its income tax system. Property tax caps are a thing that sounds simple from the taxpayer side, but in the reality of running governments and being transparent.…it makes it complicated.

Politicians on all sides are sounding the alarm as property values and the taxes tied to them have spiked in recent years. Taxes for owner-occupied For seniors, individuals making up to $40,000 and households making up to $50,000 with assessed values up to $300,000 would qualify — an increase from $30,000 and $40,000, respectively, for property up to $200,000 currently in statute. The estimated cost for this is between $15 million and $22 million and it would impact local units of government.

For disabled veterans — which includes Hoosiers with total disabilities or veterans over the age of 62 with at least a 10% disability — the cap on assessed values moves from $240,000 to $350,000. Local governments would lose an estimated $6.8 million that taxpayers would save.

The 150% increase in exemptions on personal income, on the other hand, would raise the limit from $1,000 to $2,500. Taxpayers would save an estimated $500 million while the state would lose roughly $333 million and local government units would lose $173 million.

Either way, not good.

Lastly, increasing the renters deduction from $3,000 annually to $4,000 annually could cost an estimated $28 million in state and local revenues.

Libertarian Donald Rainwater has proposed a seemingly much simpler solution: Abolish the property tax and replace it with a 7% tax on all property sales. If buyers could not afford to pay the full 7%, they could instead pay 1% per year for seven years. After this sales tax was paid, the homeowner would owe nothing further on the property.

This sounds great on the surface but so did my first two marriages.

So, Rainwater wants to do away with the entire property tax system and replace it with a 7% tax on the sale of property but thats a move that could be even more dire for local governments. His plan would appear to affect the largest drain on local property tax revenues of the bunch. It also relies on infrequent property sales rather than annual tax bills. See where I’m going with this? If a home sells twice in 100 years, that’s only twice every 100 years the state will get some money from this to put back into local governments.

Indiana has tinkered with its sales tax and various tax caps as a way to provide property tax relief while still funding local government — and particularly schools for 50 years.

To summarize these plans: The Libertarian tax plan is more like 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 but not sustainable long term.

Like both of those marriages.

There are three problems with each of these tax proposals. The first is that we here in Indiana are not overtaxed. Please, don’t shoot the messenger. Local government employment per resident in Indiana is lower now than at any time for which we have data — at least a half century. The fact is 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 slowed 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, and make more Hoosier 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, Democratic and Libertarian plans might accomplish.

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