"IT IS THE DUTY OF THE PATRIOT TO PROTECT HIS COUNTRY FROM THE GOVERNMENT." - THOMAS PAINE (1737-1809)


Wednesday, February 27, 2008

A NEW PROPERTY TAX REPEAL PLAN

To get this plan enacted, a lot of lawyers, cpas, and consultants will have to be ignored. This is the only "fair" way to finance government according to the plan's author. We would appreciate as much feed back as possible on this plan.

REPLACING PROPERTY TAXES WITH SALES TAXES
PROPERTY TAXATION MUST BE REPEALED

CURRENT PLAN
6% sales tax on goods = approximately 6 billion per year
no sales taxes are collected on foodstuffs, prescription medications, or prescription medical devices or supplies, or prescription hearing, vision, or dental devices. This would remain the same under the following dissertation.

I will present two anecdotal experiences on sales taxes applied to services as well as goods. However, I think that these are very realistic presentations of the current economy.

1. If you engage an electronic technician to repair your TV or Stereo or other home electronic devices the total charges might be as follows. QUALIFICATION: I operated an electronic service business for many years and the total charges for the repairs in most cases were as follows: the total repair charge was in most cases broken down to 63% service call and labor –round to 60% - and 37% for parts (goods taxable at 6%) – rounded to 40 %. Now let us apply this to the current income that is generated by taxing goods only and apply the increase of income which would be provided by taxing services as well at the current rate of 6%. The 40% is equal to approximately 6,000,000,000 per year. The proposed 60% would be equal to 9,000,000,000. per year.

Well I guess that would cover the loss of property taxes ( 8.2 billion per year) and then some. And this doesn’t include the tax income from professional services which I do not have income information for but which I suspect would be equal to or greater than the 3-1/4 % income tax.

In my opinion, with the added income from professional services, the overall sales tax could be reduced to 3% or maybe even 2% and still provide the needed revenue to finance our bloated local and state government. And really help the lower income families in our state.

2. Let us try another non-anecdotal service payment from just the last year. The clothes dryer wouldn’t heat, so my son and I checked out the obvious things like the circuit breaker and the heating coils – both ok. So I called a recommended repair service. Their service technician determined that a sensor had failed and an upgrade “kit” was required to solve the problem. This diagnosis proved to be true and the charge for the repair was $125.00 plus $1.80 for sales tax on parts (goods). Now this breaks down to $95.00 for service call and labor and $30.00 for parts (goods). Now let us apply this to the current income generated by goods only @ the current 6% sales tax and apply the gain in tax that would be generated by a sales tax on services at 6%. The services would be approximately 80% and the parts (good) would be 20%.

20% collected would be = to approx. 6,000,000,000
80% collected would be = to approx 24,000,000,000.

I would guess that this kind of revenue would “super finance” state and local government.

Now let us cut the sales tax rate to 3%.

The income on goods would be approx. $3,000,000,000. The income on services given in these two examples would be somewhere between$12,000,000,000 and $9,000,000,000. More than enough to finance state and local government. This doesn’t include the tax income from personal services such as attorney’s fees, CPA fees, and consulting and lobbying fees. I think that the income from these fees would allow the lowering of the sales tax to probably 2% and still fund state and local government before we reorganize it and cut out the “pork”, “fluff”, “patronage”, and payoffs.

I also think that we should apply a “pilot” (payment in lieu of tax) to businesses and non-profits and churches which would be much less than the current property and inventory taxes. Again, PRESCRIPTION MEDICINE, FOODSTUFFS, MEDICAL SUPPLIES, MEDICAL TESTS, HEARING, DENTAL AND PSYCHOLOGICAL SERVICES should be exempted from sales taxes.

This formula would be a boon to lower income earners and senior citizens and a huge attraction for groups wishing to attract new business to Indiana. Just think - More businesses, more employees, and more tax payers. The state would flourish and be a leader in innovation for all other states. And all this before we reduce the bloat in government.

Maurice H. Gunyon
Indianapolis

From Hoosiers for Fair Taxation
Wednesday, February 27, 2008

Posted by Team Hammond at Wednesday, February 27, 2008

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Blunt Proof of the Feasibility to Permanently Abolish Property Tax

IMMEDIATE RELEASE
Media Contacts:
Melyssa Donaghy 317-938-8913
Max Katz 765-409-6669
www.HoosiersForFairTaxation.com

BLUNT PROOF OF THE FEASIBILITY TO PERMANENTLY ABOLISH PROPERTY TAX.
Hoosiers For Fair Taxation, Senator Delph, Representative Noe, Representative Elrod and many other legislators along with Stop Indiana, attorney John Price, Eric Miller's Advance America, and the Statewide Taxpayer Alliance know that property tax abolishment, without substantial increases in sales tax and income tax, is realistic and possible. The economist Dr. Bill Styring's 2/2/2 Plan demonstrates that the state of Indiana can completely replace property tax without changing the state's current spending habits.

Dr. Styring's plan does not account for positive changes in Indiana's economy that will undoubtedly follow the elimination of property tax such as heavy real estate investment and increased consumer spending due to increased statewide disposable income. The real estate investment in Indiana alone would cause such an economic boom that it could likely end our abandoned property and foreclosure crisis. Property tax elimination would also likely cause a surge in Indiana's population as more people locate to Indiana to take advantage of real estate purchase opportunities without the burden of property tax. With the population surge would come more sales and income taxes.

The General Assembly does not have to adopt a specific plan until the year 2011. In the meantime, we recommend that the General Assembly approves the 27steps outlined in the report prepared by the Sheperd Kernan commission. While the Governor's commission cannot forecast the savings to the state once the plan is implemented, there is no doubt that the savings would be substantial--perhaps equivalent to the the entire property tax burden currently placed on Indiana's homeowners because our legislators have not had the political will to liberate Indiana's governing structure and her taxpayers from the 19th century.

Our citizen networks will work to replace all legislators who do not support property tax repeal in the November 2008 election.

The 2/2/2 Plan, to replace property taxes in Indiana based upon the latest revenue forecast (07/08 fiscal, estimate):

1) Current IN sales tax (state level rate of 6%): $5.601 billion2% increase would yield an additional $1.867 billion

2) Current corporate profits tax: ~$2 billion

2% increase would yield an additional $.286 billion ($286M)

3) A 2% statewide average of the COIT would yield $2.705 billion to cover local civil units of gov.

By adding these three together ($1.867 billion + $.286 billion + $2.705 billion), a total of $4.858 billion is realized; enough revenue to replace property taxes.

PROPERTY TAX HISTORY PREPARED BY DR. BILL STYRING
Indiana has a 70-plus year history of attempts to lower property taxes by raising other, non-property taxes. In every case these have failed miserably. The new taxes, or higher rates on old taxes, remain in place. And, in short order, property taxes rise back to their old levels, poised to roar even higher.

--1933. General Assembly imposes two new taxes: an individual gross income tax and a corporate gross income tax. The morgue of the Indianapolis Star indicates that the political leadership at the time said this was for property tax relief (1933 was the pits of the Great Depression, and people were losing their homes. Home prices declined by over 40% in the 1929-1933 period). Property tax relief was nonexistent. The state used the money to bail out the state's own finances.

--1963. General Assembly imposes a new sales tax at a rate of 2% and changes the 1933 individual gross income tax (from 1933) to an adjusted gross income tax (the one we have now) at a rate of 2%. Again, the ostensible reason was for property tax relief and again little PTR was forthcoming.

--1967. Those 1963 tax changes were raising more money than projected. The GA decides to give back 8% of sales and income tax revenue to local government for property tax relief. Local units spent the money. No PTR.

--1973. Gov. Otis Bowen launches the most determined PTR offensive yet. The sales tax goes to 4% and a new corporate supplemental net income (profits) tax is imposed. Strict property tax levy controls are imposed. It works... for a time. By 1980, property taxes adjusted for inflation are some 30% lower than in 1973. When Bowen leaves office the levy controls are relaxed. By the end of the decade, property taxes (adjusted for inflation) are back to 1973 levels. The doubling of the sales tax rate from 2% to 4% remains in place, along with the new corporate SNIT.

--2002. More fiddling with the sales tax in the hope of property tax relief. The results of this are obvious, or we wouldn't be debating the current property tax mess. All of this suggests that unless the property tax is totally ripped up by constitutional amendment, the assessment and collection mechanism dismantled, it will grow back. The PTR-inspired hikes in other taxes remain. That is our history. It is a terrible deal for taxpayers.

2. A vote in the 2008 legislative session for a constitutional amendment to repeal property taxes does not amend the constitution. It merely starts the amendment process. Amendments must be passed by two consecutively elected General Assemblies, then submitted to a referendum. Thus any amendment passed by the '08 Assembly must be passed by either the 2009 or 2010 legislatures, then submitted to the voters at the 2010 general election. The General Assembly does not need to decide on a "replacement revenue" package until the 2011 session.

3. What might such a "replacement revenue" package look like? The particular answer will come from the 2011 General Assembly and cannot be determined now (if for no other reason than forecasting state level taxes and property taxes out that far would be a most unreliable exercise. No one need be locked into any particular plan just yet. However, as an illustration that a replacement plan is feasible and less scary than many fear (we don't need to be talking about a 12% or 13% sales tax ... in fact, we should not be), consider just this one possibility.

Local sales taxes are generally very bad policy, for a whole host of reasons too numerous to mention in this short sketch. Sales and corporate taxes are best levied at the state level. It happens that roughly a 2% increase in the sales tax and a 2% increase in the corporate profits tax roughly take care of school propertytaxes. The loss of local control by the state assuming school property taxes is minimal. About the onlylocal control left is on building projects.

For local civil units, a statewide average increase in the individual adjusted gross income tax of about 2% suffices to replace local civil government property taxes, higher than 2% in some units, less than 2% in others.

Thus, a "2-2-2" plan~2% sales and 2% corporate profits at the state level for schools and a 2% average on personal income taxes for civil units—is about what would be needed. This is merely a ballpark projection to 2011.

There may be better plans, it's really a policy question for the General Assembly: do you want to make the trade of something like this in exchange for no-property-taxes-forever-on-anything? Everyone understands "zero."

4. Are there "practical problems? Of course. The two identified are how to make the civil government transition from a property tax base to an income tax base, and how to handle debt backed by property taxes. Without elaborating, the former can be handled using locator software (Map quest-type programs). The debt problem might be handled by treating the current state paid PTRC's as in lieu of property taxes (which they are) and paying PT-backed debt service from each unit's own PTRC.

Conclusion: Total elimination of the property tax via constitutional amendment is the only way to give property tax relief that will stick. The other tax action necessary to achieve this goal—in 2011-are large but not so scary as "a 13% sales tax." They are feasible. The question is for the General Assembly. Are we going to once again go down that 70-odd year path of failed PTR policies or are we going to rip the property tax up by the roots?

Posted by Hoosiers For Fair Taxation on Friday, January 4, 2008.