It was a beautiful sunny Hoosier day and I was delighted to see Faye of the Forest perched on my deck railing.
"Hey, Faye," I said. "What's up?"
"My property taxes are up," she said, with irritation in her voice but a tear in her eye. "You know my little treehouse. I've lived there for years and the taxes keep going up. Why? What is going on?"
"I hate to say this," I said, "but the explanation gets more complicated every year as the General Assembly finds new ways to avoid its responsibilities.
"Let's start at the beginning. Local governments need money to do their jobs. They run the schools and libraries, the police and fire departments, the garbage collection and snow removal. They run the courts and maintain our property records."
Faye sniffed back a sniffle, but continued to listen.
"All the things we want keep getting more expensive," I said. "We want better schools, we want faster response times from the ambulance service, we want and we want.
"The local governments (counties, townships, cities, towns, school districts and more) figure up how much money they need to do the jobs we want. Then they subtract the money they will get from the state based on the number of schoolchildren or the local income-tax receipts, or whatever complex formula applies. What's left to be funded is the levy or revenue to be raised by local property taxes."
"OK," Faye said, but her eyes were beginning to glaze over.
"Every tax," I said, "has a base on which the collections are made. For example, you go to the grocery and buy $10 worth of taxable goods and they add 6-percent sales tax, so you end up giving the clerk $10.60. You notice I said 'taxable goods' because the state decides what it will and will not tax.
"The same is true with property taxes. This year, the state is no longer taxing business inventories. That lowers the local tax base and means that, to raise the same amount of money, tax rates have to rise. So your taxes go up.
"Then the state decided not to adjust the assessed value of property used for agricultural, commercial and industrial purposes. Yet they did allow local assessors to adjust the value of residential property. If you live in a neighborhood where sales values are 5 percent higher than the last time an assessment was made, your property sees an increase in its value.
"See what's going on? Residential property is becoming a larger part of the total assessed value of all property in the community and all homeowners end up with higher taxes.
"Of course, legislators will tell you that, although they reduced the homestead credit, which raises your tax bill, they did raise your homestead exemption, which lowers your assessed value and your tax bill. And don't forget, your legislators also promise you'll get a refund check sometime in the future."
"But is it fair?" Faye asked.
"What would be fair?" I asked in response. "Should property taxes be based on services received? If you don't have children in school, put out very little garbage, and don't have a fire at your house, should your taxes be reduced? Or should you pay for these services because they help create a safer and more civilized community?"
"All I want is to live quietly in my treehouse," Faye said, sighing.
"Perhaps," I said, pursuing the issue, "you think that government services should be financed by an income tax only, that the 'ability-to-pay' should be the guiding principle."
"Too much," Faye cried out. "It's all too tangled like the vines in the forest, vines that can kill the very trees that make the forest desirable in the first place."
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, go to IBJ Forum at www.ibj.comor send e-mail to email@example.com.