Indiana Property Taxes: Daniels Gets It

July 20, 2007

While rising property taxes often cause state lawmakers to catch the “do something” disease (see here and here for examples), Indiana Governor Mitch Daniels appears to be immune.

Property taxes are rising in Indiana, with taxpayers in some counties (including Marion County, which includes Indianapolis) seeing their bill increase by more than 25 percent. This is naturally leading to calls for state lawmakers to ease the property tax burden. During the July 4th week, about 400 people showed up at the home of Governor Daniels to urge him to “do something.”

Last week, the Governor released a statement concerning the property tax debate in the Hoosier State. After acknowledging that he is dismayed at the rising property tax burden, he says:

“Let’s start with the basics: property taxes pay for local spending and local borrowing. They are collected by and for local government, schools and libraries. When, as in Marion County, local spending goes up 10 percent per year, taxes are going up with it. Local assessment that claims Marion County home values grew 19 percent faster than commercial property is another obvious factor in Indianapolis’ acute problem.

Although the cause of the problem is local, state government has tried repeatedly over 35 years to relieve the property tax burden on Hoosier citizens. Through sales and income taxes, the state already provides more than $2 billion annually — a quarter of total property taxes — to subsidize local government spending. The recent legislature dedicated another half billion dollars to this purpose, and also gave localities major new flexibilities to reduce property taxes and replace them with income taxes. This new power to reduce property taxes has not yet been used in Marion or any other county.”

This is a refreshing take on the property tax debate and should serve as a model for how lawmakers in other states respond to rising local property taxes. Too often, state lawmakers choose to swap higher state taxes for lower local property taxes, a non-solution that takes money from one pocket and puts it into another.

Daniels correctly identifies the root cause of the rising property tax burden: local spending. He goes on to show that, despite repeated efforts by Indiana lawmakers to reduce the local property tax burden, property taxes are still on the rise. This is a subtle way of reminding Hoosiers that they are better off directing their ire to local lawmakers, not the state. For his part, he did say that in the near future the state would reject any local budgets that spend above the rate of inflation, as a means of keeping local spending under control.

Indiana is a prime example of the perils of state involvement in local property tax controversy. In 2002, state lawmakers feared that a Supreme Court ruling striking down the state’s property tax assessment scheme would lead to dramatic increases in property taxes. In response, they passed a tax package that increased state sales and cigarette taxes to pay for local property tax relief.

Now, five years later, taxpayers in Indiana are paying higher sales and cigarette taxes and seeing their property tax bills increase anyway. Can Hoosiers really afford more state involvement?


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