The Associated Press has an article reporting that the House Ways & Means Committee will hold a hearing on The Daniels Plan for tax restructuring. The article calls it “property tax reform,” but I think that is a loaded phrase. First, that implies that the Daniels Plan is better than the current property tax plan. That’s not necessarily wrong, but it’s certainly debatable. More importantly, the phrasing focuses on the property tax implications to the exclusion of the income tax and sales tax implications. So, I’ll go with tax restructuring.
Daniels has proposed increasing the state sales tax to 7 cents on the dollar, from the current 6 cents, and limiting property tax bills to 1 percent of assessed valuation for homeowners, 2 percent for rental property and 3 percent for business.
Daniels also wants the state to pick up the costs of schools’ general funds, school transportation and child welfare and supports limiting local spending growth to the six-year average growth of personal income.
On principal, I am against amending the Constitution in this fashion. The Constitution is supposed to be a more or less timeless document. That’s not always possible, but I think you want to avoid writing today’s needs and assumptions into the document in cases where you can be pretty sure those needs and assumptions are going to change. Furthermore, my local treasurer and former auditor likes to describe the tax situation as being like a balloon. If you squeeze one end, the other end is going to expand. Here we have a proposed squeeze on property taxes at 1% for homeowners, 2% for landlords, and 3% for businesses. Is that always going to be the optimal tax-to-valuation ratio for funding government? There is no way of knowing. Is the balance to be struck in the upcoming session between property, sales, and income tax going to be the right balance for at least a generation? If we can’t be reasonably certain of these things, we shouldn’t be writing them into the Constitution.
What I’d like to see is some kind of break down of who wins and who loses. What can various income levels be expected to pay in increased sales taxes and how does that compare to the probable reduction in property taxes for a variety of home values?
masson, I did the calculation for me here in Lake County.
According to LSA, Lake County will need to raise its COIT to 4.7% to replace the revenue from a 1%/2%/3% tax cap.
If my property taxes are cut in half, that almost EXACTLY equals 4.7% of my income!
I’m still behind the 8 ball because of the increase in the sales tax.
So, to me at least, Mitch’s plan is a 1% sales tax increase for me, nothing more!
I’ve got more numbers and more links at my blog. I haven’t gone through the LSA report myself yet.