Sunday, April 26, 2009



INDIANAPOLIS - There sat the serene House Speaker B. Patrick Bauer at his desk before the Statehouse press corps last Thursday and a Mitch Daniels bobble head doll. Bauer tapped it and Gov. Daniels’ plaster head bobbed up and down. “The governor is here with us and he agrees with me almost all the time,” the Speaker said as laughter filled his small office.

Of course, nothing could be further from the truth. Daniels and Bauer are worlds apart when it comes to how Indiana should be governed.

It feeds into the question of who the most powerful person in the Statehouse really is: a constitutionally weak governor seeking to radically rebuild a backwater state, or a powerful Speaker who is the bulwark for an anemic status quo, and who is motivated only by the maintenance of his own elevated political station?

When the deal-making reaches true intensity next week, will Bauer, the stasist defender whose caucus has made a mockery of just about every progressive piece of legislation that has passed through its doors, win this battle and lose the war? For Daniels, who entered this session off a landslide victory and leaves it with near 70 percent approval, his legacy is at stake. His governorship will not be deemed successful unless he can achieve profound government and education restructuring.

The backdrop to this is the potential General Motors and Chrysler bankruptcies and liquidations, coupled with a steel industry collapse, whose production is the lowest since the Great Depression. There have also been two township trustee criminal convictions this past week.

Here are the key issues that must be determined by April 29:

The budget: This is the governor’s top priority and at this writing, he is looking at a stinker. It is loaded with Obama stimulus funds he warned Bauer and Senate Appropriations Chairman Luke Kenley not to use. Daniels wants a two-year budget that is truly balanced. Bauer wants a one-year budget given the economic crisis, but the governor has no stomach for dealing with it again next year.

State revenue forecasters predict Indiana will take in $690 million less over the next two years than last December’s estimate. That doesn’t include a Chrysler liquidation that could spread to suppliers, creating a belt of Indiana counties in Northern Indiana facing jobless rates between 15 and 20 percent. A question with no answer is what happens to those numbers with an automotive/steel collapse? Kenley’s foundation is an 8 percent budget cut plus using $2 billion in federal stimulus funds to increase education spending between 1 and 2 percent.

Unemployment Insurance: This is the issue in HB1379 most likely to create the need for a special session. A House Democrat plan put forth on Monday would saddle Hoosier employers with $1 billion to fix the shortfall, compared to the $328 million in the Senate bill, which would include some cuts to beneficiaries. This is one of those issues that got kicked down the road and now a solution must be found in crisis.

Asked how many Hoosier companies are teetering financially, Indiana Manufacturers Association President Pat Kiely answered, “There is no data available to determine how many Indiana manufacturers are on the brink, but we do know anyone related to autos, RVs and housing are in the worst positions.”

A look at Department of Workforce Development notices as of Wednesday reveal 5,527 jobs that will be lost between now and the end of June, which wouldn’t include 6,000 Chrysler jobs and related suppliers. “Passing a $1 billion tax increase as called for in the House Democrat conference committee report is clearly insane and for bargaining purposes,” Kiely said.

“Probably the right question to ask is how many employees will have to lose their jobs in every sector to pay for the tax? Employees will be impacted more than companies in most cases, which makes this tactic hard to understand and even harder to understand is why we continue to play political games with a subject that needs repairs and not rhetoric with one week left,” Kiely noted.

There is persistent speculation that Bauer is angling to blow up the UI bill and let the Obama administration deal with it. How does the idea of Washington running this sensitive fund strike you?

Education: I once viewed this as a key 11th-hour bargaining chip. Daniels might get his balanced budget or some Kernan-Shepard reforms in exchange for more education funding. Our sense at this writing is that the jobs trust issue is overshadowing the issue of increased education funding. Democrats are concerned that poorer school districts are being shorted by the Republican budget.

Kernan-Shepard: The miscalculation may have been Bauer and Senate Minority Leader Vi Simpson’s decision to not choose even a few of the 27 Kernan-Shepard recommendations for passage. The complete dismissal of all Kernan-Shepard reforms sets up a dramatic political showdown for House races in 2010 that will almost certainly be played out in places like Kokomo, Indianapolis, Terre Haute, Rising Sun, Marion and Pendleton, some of which will be experiencing titanic job losses. Imagine a campaign featuring a direct contrast between Daniels and Bauer. It’s coming.

My prediction? Just as we saw during the severe recession of 1982, a special session is probably likely sometime this year once we finally understand the full implications of the auto and steel crisis.

The columnist is publisher of www.howeypolitics.com.

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.