Saturday, February 14, 2009


From our friends at Watchdog Indiana:

This E-mail Update challenges the General Assembly opponents of the constitutional property tax caps in Senate Joint Resolution 1 to debate the merits of their position in public outside the Statehouse shadows. The key points include the following:

1. SJR 1 opponents falsely claim they need more information before they can take a responsible SJR 1 vote.

2. The net effect of 2010 property tax caps on the total expenditures of Indiana's K-12 public school systems will be negligible.

3. The 2010 property tax caps will have NO significant impact on essential service delivery by the great majority of Indiana's 566 cities and towns.

4. SJR 1 opponents are afraid to debate their position outside the Statehouse shadows.

5. Governor Mitch Daniels did his part to support a public SJR 1 debate in his State of The State Address on January 13.

6. Watchdog Indiana challenges every SJR 1 opponent in the General Assembly to a public debate.

7. Watchdogs must act now to insist that General Assembly SJR 1 opponents publicly debate their positions and not hide in the Statehouse shadows.

SJR 1 opponents falsely claim they need more information before they can take a responsible SJR 1 vote. The state's non-partisan Legislative Services Agency issued on January 5, 2009, an updated report of the property tax revenue decline that every local government unit can expect as a result of the property tax caps in 2009, 2010, and 2011. EVERYONE can go to http://www.in.gov/legislative/pdf/CircuitBreaker_2009_BASELINE_20090105.pdf to complete their own analysis of the LSA report. Watchdog Indiana has updated the following two in-depth analyses:

(1) K-12 Schools Impact. The net effect of 2010 property tax caps on the total expenditures of Indiana's K-12 public school systems will be negligible. The state's 293 K-12 public school systems will experience a net revenue decline of $41,631,042. This $41.6 million property tax caps revenue decline is only 0.3% of the $13.5 billion grand total spending by Indiana's schools in 2007. Of the 293 school systems, 286 will experience a revenue decline that is less than 1%. Six school systems will experience a 1% to 2% decline, while only one will experience a decline that is 2.5%. Complete analysis details can be found at http://www.finplaneducation.net/caps_schools_impact.htm.

(2) Municipal Impact. The 2010 property tax caps will have NO significant impact on essential service delivery by the great majority of Indiana's 566 cities and towns. The great majority of cities and towns - 486 or 85.9% - will have their budgeted funds that include property tax levies impacted 5.0% or less by the 2010 property tax caps. The remaining cities and towns will have their 2010 property tax funds impacted 5.1 % or more. Of Indiana's 92 counties, 17 counties MAY need to consider a local option income tax in lieu of finding less expensive ways to maintain essential municipal services for many citizens. Anyone who uses property tax caps in the other 75 counties to justify the imposition of a LOIT is mistaken or intentionally misleading you. Complete analysis details can be found at http://www.finplaneducation.net/caps_municipal_impact.htm.

The false claim calling for more SJR 1 information is nothing more than a delaying tactic based on a cynical belief that public interest will wane and the old ways of doing business can return - a burdensome property tax on working families no matter how much other taxes go up. The real reasons to support the single-interest property tax spenders at the expense of the property tax payers are not discussed in public. SJR 1 opponents are afraid to debate their position outside the Statehouse shadows.

Governor Mitch Daniels did his part to support a public SJR 1 debate in his State of The State Address on January 13. He dedicated more than 10 percent of his Address to beseeching the General Assembly to "show your faith in our fellow citizens" by passing SJR 1 now. Governor Daniels eloquently made the point that "procrastination will add nothing to what we know." The Governor's complete Address can be found at http://www.in.gov/gov/09stateofstate.htm.

Blunt Proof of the Feasibility to Permanently Abolish Property Tax

Media Contacts:
Melyssa Donaghy 317-938-8913
Max Katz 765-409-6669

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.

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.