EYE ON THE PIE: Many are fans of 'the man's' plan

November 5, 2007

This is why I like Mitch Daniels. Speaking about his property-tax program, he said, "When Indiana acts this time, and act we must, our steps must be fair, far-reaching and final," Look at that alliteration ... "fair, far-reaching and final." Who else in public life gives us sentences like that?

Look at his idealism: "fair, far-reaching and final." Our state is known for its persistent lack of fairness, its shortsighted special-interest legislation, and its neverending tinkering. Mitch thinks he can overcome this history.

The governor's property-tax program is an efficient political statement that apportions goodies to everyone. Homeowners are given the most favored treatment because they constitute a majority of voters. As the governor puts it: "There's something special about homeownership and we want to protect it and promote it."

For conservative Indiana, this is a remarkable statement. Isn't that excessive government intrusion into our affairs?

Under the governor's plan, homeowners would see their property taxes capped at 1 percent of assessed value. The Daniels folks tell us that today "55 percent of homeowners pay property taxes in excess of 1 percent of their home's value." That's what I like; these folks consider the facts.

Yet, what makes 1 percent of assessed value "fair"? Why is it fair for rental residential property to bear a 2-percent cap and commercial/industrial to suffer a 3-percent cap? If we are taxing property, why discriminate by use? Is the lawn of an owneroccupied property more precious to us than the lawn in front of a dentist's office?

To ensure that these inequities endure, the governor seeks a constitutional amendment to preserve the details of this proposal. Such changes would give legitimacy to the long-standing discriminatory violations of the Indiana Constitution passed by previous General Assemblies.

If sales taxes rise to cover lower property taxes, consumers will buy less and/or pay more for what they get. If they buy less, both the consumer and the retailer, her employees as well as his suppliers, will all be unhappy. But their unhappiness depends on how much they benefit from the lower property taxes.

How much less do you weigh when you take change out of your right pocket and put it in your left pocket? That's what is being proposed here: Cut property taxes and raise both sales and personal income taxes. But wait, there is more:

The governor's proposal says we must cut local spending. Is our local public spending too high? Are our public schools too good for our children? Are our police and fire departments too well-equipped? Do we over-spend on public health? Are our streets too clean and our sidewalks (if any) in decent condition?

How much local spending is mandated but not funded by the state? Yes, it's always easy to blame the locals, but then Indiana, for the past 40 years, has expressed contempt for local representative government. Mitch's proposals are fully within this tradition.

The Tax Board in each county, not directly elected by the people, is to sit as a super-governmental entity, empowered to review and approve or reject the spending programs of all government. Why is their judgment superior to that of the elected representatives who propose the spending?

Second, the governor wants to keep local spending increases from exceeding the six-year growth rate of personal income in a county, unless approved by the voters. Similarly, the governor wants "significant" capital expenditures approved by public referendum. Once again, representative government is demoted and public ignorance is elevated.

Remember the writings of the founding fathers in the Federalist Papers? Perhaps back then there was more concern about good government and less fuss about property taxes.

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. Marcus can be reached at mmarcus@ibj.com.
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