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Homestead credit sparks heated debate

October 20, 2012

Before the Indianapolis City-County Council adopted its budget Oct. 15, Republicans argued passionately to end a property-tax subsidy for the wealthy, and Democrats resisted.

Council meeting Republicans and Democrats are arguing over who benefits most from a property-tax subsidy. (IBJ file photo)

Or so it seemed.

The issue is Mayor Greg Ballard’s proposal to eliminate the local homestead tax credit. (Note: The credit is different from the homestead deduction, which brings big savings on residential property taxes by lowering assessments.) The credit uses local income tax revenue to offset property tax bills by the same amount.

The problem, explains city Controller Jeff Spalding, is that since the introduction of property-tax caps, a significant group of homeowners sees zero or almost-zero benefit from the credit. He wants to eliminate it because that would mean a net increase in income-tax revenue of about $9 million.

Meanwhile, the average increase in property tax bills would be less than $20.

But Democrats on the council have rejected Spalding’s plan because the majority of homes that do benefit from the credit are valued at $150,000, or less, according to Spalding’s analysis. The single-largest group has values between $100,000 and $150,000, and the average tax bill would increase $24.76 without the credit.

Republican Councilor Ben Hunter chided the Democratic majority for keeping the credit because the largest dollar savings are in wealthier neighborhoods in northern Washington Township and Pike and Perry townships.

So who’s right? Both. The homestead credit delivers larger savings to higher-value homes, but a larger number of lower-priced homes, about 170,000 of them, benefit as well.•
 

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