ECONOMIC ANALYSIS: Band-Aid approaches won't resolve property-tax fiasco

July 23, 2007

Well into my career as an economist, I used to have a recurring conversation with my now-departed father, who had wanted me to become a doctor. What would you have to do, he would say, if you decided today that you wanted to be an MD? Somehow, the list of actions I would tick off-quitting my job, taking several years of chemistry and biology, years of medical school and internships-never seemed to faze him, and he was always eager for me to get started.

That's the sense I have when we start to peel the onion back and examine the chain of events that have brought us to this point on property taxes in Indiana. We've gone down the road so far in putting Band-Aids on our state's property tax system, kicking the can ahead for future Legislatures to deal with, that going back to square one and doing it over the right way is so daunting as to be almost unthinkable.

But if the ire being directed at our elected leaders from places like Allen and Marion counties and elsewhere is any indication, we'd all better start thinking hard about it, nonetheless. Because what our system has evolved into today breaks almost every rule and principle of taxation on the books, both in a political and an economic sense.

In fact, the loathing of the tax has become so intense that many will be unsatisfied with anything but its outright destruction. But before we gallop off to the battlefield to join this noble cause, let us do two simple things: Stop and think. After all, taxes are never actually destroyed-they are merely shifted. And didn't the much-heralded elimination of the inventory tax come bouncing back at us as higher tax rates on other forms of property?

Some of the property tax mess of today-as typified by property tax bills arriving in Marion County mailboxes calling for 40 percent or higher increases in taxes due-can be traced to fundamental causes, and some can be attributed to the long succession of Band-Aids legislatures controlled by both parties have pasted on. If Gov. Mitch Daniels' new commission does its job well, it will look at both aspects of the situation.

There are three fundamental problems with our property tax system-its unpredictability, its administration, and its link to our abilities to pay. The levy system in Indiana seems to never come up for debate-yet the tax-rate-setting procedure that makes tax rates themselves a wild card sends taxpayers into a tailspin when they get their bills. We know what our sales tax, our income tax and even our excise tax on our cars will be, but we never know what our property tax bill will be until we open our mailboxes.

But taxpayers are not the only ones in the dark. Because of what only can be called inept administration, our elected leaders, especially at the state level, too often are clueless as well. But it's hard to give them much sympathy-they've either winked and looked the other way as localities flouted reporting requirements and deadlines, or failed to pony up the dollars to bring assessment and administrative procedures into the information age.

And how much longer do we need to hear stories of low-income households hit with sky-high tax bills before we make the relatively simply change of shielding those of limited means from shouldering the full burden?

If those challenges aren't daunting enough, there are several decades of short-term fixes-which we have increasingly become addicted to-left to undo, to the point where spending of other tax proceeds to buy down the level of property taxes localities actually need to collect ranks as the second-largest use of Indiana's general fund revenue.

It's a little like stopping your career and going back to the beginning to start off in an entirely new direction-except in the case of property tax reform, the state really has little other choice. Paying a well-administered tax still won't be fun or popular, but until we reach that goal, the pain we inflict on ourselves will be much worse.

Barkey is an economist and director of economic and policy study at the College of Business, Ball State University. His column appears weekly. He can be reached by e-mail at
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