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EYE ON THE PIE: What's wrong with property taxes?

March 5, 2007

So much is going on in the Indiana General Assembly that it makes my head spin, which makes me dizzy and unfit for driving safely on the roads.

That, plus the recent heavy snows, has made me a hermit. To re-enter society, I called Dr. Werner von Fizzle, the only psychologist I know who provides at-home consultations.

As he sat down, Dr. von F asked, "Do you have some tonic vater?" I nodded and rose to fill his request. "And," he called after me, "maybe just a bissel, a bit of gin?"

I returned with his gin and tonic. "Doctor," I said, "I am confused by a world that seems confused, not just confusing."

"For example," I said, "the Legislature wants to raise cigarette taxes to pay for health insurance for those who do not have and cannot afford such insurance. Our concern should be health care, not health insurance. People need care when they are ill. Insurance companies benefit by denying care, by delaying payments to doctors and hospitals, and by charging more than they have to pay out. Insurance is a legitimate business, but it does not have a clear incentive to increase health care services."

"This, it bothers you?" Dr. von F asked, leaning back on the couch.

"It certainly does," I replied. "I'm also troubled by all this property-tax-relief talk. Why do we need property-tax relief? Don't people realize that if their property taxes decline, then their income and/or sales taxes will have to rise?

"Some people say we should let local government tax individual and corporate incomes. Others want localities to be able to levy sales and innkeeper taxes. Giving localities more taxing powers so that property taxes can be reduced seems to be a game for jugglers. Who stands to gain and who loses under such propositions?

"Is this just another ploy by real- and pretend-farmers and by multistate corporations to lower their tax while others bear more of the burden? What happens to the average household? Do they end up paying more or less in taxes? Do county governments have more or less revenue? Is this another way of cutting public services or a sly tax increase?

"What's wrong with property taxes?" I asked rhetorically. "Has anyone shown (rather than just asserted) that property taxes are less fair, less efficient or more burdensome than income or sales taxes? People have been told often that they bear a great burden with property taxes. But, as Ronald Reagan knew, folks who see their property-tax bills see them only twice a year. If they paid their property taxes as they pay their income and sales taxes (a little bit at a time), they'd not notice them at all. That's the way it is with people who have their mortgage companies take care of their property taxes through escrow accounts."

"Hmmm," the good doctor said, as if from a great distance.

"Oh, it goes much further than that," I declared. "What about the annexation issue? How are we going to decide if certain properties are to be annexed into a city? It's a live issue in Boone, Hamilton and many other counties. Often, property owners don't want their property annexed, swallowed up (as they see it) by a greedy city. At the same time, city taxpayers feel their non-annexed neighbors are parasites, not paying for services provided by the city. Is there a way of deciding these questions based on fact rather than passion? Is voting really the best way to decide such matters or are there independent standards that could be applied?"

After giving voice to all these questions, I felt better, even buoyant. Often, just getting the questions out clears the mind and moves us toward answers. Dr. von Fizzle's therapy had worked; I'd let him sleep and then discuss his bill when he awoke.



Marcus taught economics for more than 30 years at Indiana University and is the former director of IU's Business Research Center. His column appears weekly. To comment on this column, send e-mail to mortonjmarcus@yahoo.com.
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