South Shore Progressive has a good post on the discussion of The Daniels Plan for tax restructuring from the perspective of northern Indiana. He passes along that Rep. Chet Dobis wants to revisit how casino money is shared among the state and local governments. Rep. Charlie Brown wants to revisit the tax breaks given to big business in Lake County in 2003 which many blame for higher property taxes in that area. Rep. Reardon from Munster wants income taxes thrown into the mix. “When you exclude income tax from the discussion, I think you’re missing something.”
That made me think of a recent post by Buzzcut at “Blue County in a Red State.” He notes the regressivity of a sales tax and suggests as an alternative a progressive statewide income tax (as opposed to flat county-by-county income taxes.)
It’s good to hear about the tax perspective from other areas of the state. Perhaps it’s my own fault for what I read and listen to, but all to often it seems I’m hearing about property taxes through a heavy Indianapolis filter. And, I think that kind of filter skews the analysis since it sounds like Indianapolis’s property tax problems are an order of magnitude greater than most of the rest of the state.
They’re just feeling the hurt we have felt here in Lake County since 2002. We just found out that our 2006 (payable in 2007) bills will finally be mailed out in late December. The FULL amount of the tax bill is due by the end of January. The county tried to say that those who can’t come up with the full amount could pay half in Jan. and half in Feb., but the state wouldn’t buy it.
Incidentally, the East Chicago school district won’t be able to meet payroll on December 28th. They didn’t borrow enough money, not anticipating it would take this long to get the 2006 money in their coffers.
Does the State ever consider structuring its tax system to maximize individual’s federal income tax deductions? The sales tax is an easy pill to grab since it is payed in such small, easily ignored increments. But if itemize deductions it can only be taken if you don’t take a deduction for your state income tax. I’d guess most people take the income tax deduction, not the sales tax deduction. If the state dumped the sales tax and relied completely on income and property taxes (to raise a fixed target revenue) it would seem to maximize the amount of money retained within the state’s borders by minimizing federal income tax collected from within the state, as well as fanning commercial development border areas of the State, such as Lake County that can draw shopping traffic from Will County, Illinois.
INteresting idea.. and a clever way to cheat both neighboring states and the federal government… how much would we have to drop the sales tax to make it worth it??
Looking back at my comment it looks a bit confused, but I think the basic point holds true. Property taxes, for people who itemize on their federal returns, will generally be deductable, while the increased sales tax probably won’t be deducted because most taxpayers will continue to take the state income tax deduction on their federal return. As a consequence, the governor’s plan will result in a small shift of wealth from the state’s taxpayers to the federal government.
Trying to design a tax regime which would optimize the amount of money kept in state might produce some strange results because of the presence of the federal Alternative Minimum Tax which recaptures deductions for state taxes.
In effect a new state income tax modeled to minimize the federal take would be imposed only on people who benefit from itemizing on their federal return and would ask those taxpayers to pay a federally deductable tax up to the point where they would be pushed into the AMT. It seems to me that under this system the state would in effect be giving a credit on state taxes for other federally deductable expenses which are recaptured under the AMT, for example, mortgage interest. I suppose Indiana would instantly become a hot bed for various exotic types of home mortgages.
You guys should read my blog. I was the first to bring up the issue of the deductibility of state income and property taxes on your federal taxes.
Raising the sales tax is a stupid idea on so many levels. We live in the era of Amazon.com. I just bought a surround sound receiver and paid no sales tax and no shipping. Take that, Mitch!
Sales taxes just don’t make any sense in the current environment.
Not to mention that property tax reform circa 2002 was sold with a sales tax increase from 5% to 6%. How’s that working for you?
We need to can Mitch’s tax plan, get rid of all these stupid homestead and PTRCs, simplify our property tax system, and just live within the current tax caps. Oh, and lower that sales tax back to 5%! Get rid of COITs, too.