Mary Beth Schneider, writing for the Indianapolis Star, has an article about a study (pdf) released by John Ketzenberger’s Indiana Fiscal Policy Institute suggesting that Indiana’s urban counties pay out more tax dollars than they get back while the reverse is true for the rural counties.
Of the state’s 92 counties, the 46 considered “metropolitan” paid 82.5 percent of taxes, while getting back 76.7 percent of revenue.
The top 10 donor counties, the study found, were Vanderburgh, Hendricks, Hamilton, Bartholomew, Monroe, Dubois, Marion, Steuben, Clark and Kosciusko.
The top 10 recipients, getting back more dollars than they paid in, were Cass, Sullivan, Parke, Miami, Clay, Union, Crawford, Perry, Jennings and Jefferson.
I guess I’m surprised to hear that half of Indiana’s counties are “metropolitan.”
I only glanced at the report, but it suggests that Steuben County was a “donor” county because of its interstates and proximity to other states, resulting in a high rate of collection of gasoline and cigarette taxes. Kosciusko, Dubois, and Adams counties, the study suggests, are donor counties despite being rural because they have residents who work in nearby metropolitan areas and, consequently, have relatively higher incomes. I only glanced at the report for an explanation of why Cass was such a net recipient county, but didn’t see an explanation if it was there. My guess would be the presence of Logansport State Hospital.
I totally agree with people from rural counties who say they don’t want their tax dollars to bailout Marion County. I feel the same way about Marion County dollars going to them. See Doug, unity!
Here again, we see the folly of collecting taxes, feeding them into the state government, and then sending them back out across the state. The time has come to allow the taxes to be collected at the county level, where they can stay and serve the people that pay them, without a percentage skimmed off the top besides.
To some extent, I agree. But, where is the appropriate limitation? You can reduce the argument to to cities shouldn’t subsidize unincorporated county areas. Townships should subsidize cities. Neighborhoods shouldn’t subsidize townships. Households shouldn’t subsidize neighborhoods. Individuals shouldn’t subsidize families. (Brains shouldn’t subsidize appendixes and other dead weight of the body?)
Going the other direction, you can end up at “from each according to their ability, to each according to their need” on a worldwide scope.
There are some government activities that benefit individuals through collective activity and monopolization of force greater than an individual could or would accomplish on his or her own. Some of these activities are probably best accomplished on a local scale (drainage maybe) and others are probably best accomplished on a national scale (defense maybe). We can’t necessarily count on individuals to fully inform or act purely rationally. This can damage others (maybe a little like being downstream from a blackjack player not playing the odds) And, there are free rider problems.
Just spitballing here.
I wasn’t suggesting going any further than county. Why is it such a temptation to extend an argument beyond the limits one suggests? I see this all the time. Is it one of those logic tricks usually described in Latin?
To the points made, I agree with you that some things are better managed on different levels. In general, I think that the more locally things are managed, the more likely, likely I say, they are to be of quality and efficient. I’ll point to the track record of the federalization of education, for example. At the same time, yes, national defense is best not left to townships or cities.
Always best to sit at the blackjack table alone. The joy of blackjack is that if you get an idiot sitting third base, you can get up and walk away before the next hand is dealt. If you have an idiot Congress, what then?
I’ve never really been able to resist taking an argument and shoving it around a little, just for fun.
In this case, though, I think it makes sense to ask questions about how we determine the level of locality at which funding is appropriate. My reaction to the study was a vague sense that it’s unfair to make one county fund another. But that sense ought to be tested to make sure it’s rational. Why would it be fair that I subsidized people outside of my city but not outside of my county or whatever geographic boundaries you wanted to use.
And I think you get at that question. Generally speaking, a functional local government and a well-funded local community is probably of more utility to me than a functional state or functional country – even where I’m not getting a direct, dollar-for-dollar return on taxes in the form of services provided by the local government.
It’s hard for me to take studies like this seriously. There are so many variables that affect which counties are net donor or recipient counties to render the study virtually meaningless.
My guess is, if you feel the county is an appropriate level for funding to occur, you live in a wealthy county. I live in a lower income county, so that concept doesn’t appeal to me as much.
The whole developmental mindset in the US is screwy. Taxpayers over-subsidize those who choose to live away from “urban” services made more economical by density. We could save money and the planet at the same time by reversing the peripheralization of residential and commercial development.
After trying to wade through the paper came away with many questions and some belief it is true as far as it goes. But consider some other ways of looking at it: big corporations are generally located in metro areas (they the big tax payers) even through workers may come from many other counties, the existence of that corporation there may have been dependent upon state taxes to support (infrastructure, grants, etc.); metros have the shopping hubs where people from many (receiving) counties go to shop; as workers/shoppers/etc. travel they spend money in the metro counties for food, gas, entertainment, etc. . Point is tranfer of funds in and out of a particular county (and the taxes it generates), business locations, university locations, state facilities, etc. (and how much of county is owned by state and federal government (parks, lakes, forests, etc.) all can play a role in tax revenue in that county. In my county (one of the receiving counties) 40% of the workers go outside the county to work; state and federal governments owns thousands of acres of land (lake, forest, 2 state parks, state preservation site, etc.)
As said, interesting study with some valid information, but hopefully not the basis of some major redistribution formulas.
I think collecting taxes at the county level would have the effect of urbanizing the population even more. The more people in a given county, the greater of the economies of scale when it comes to health care, policing, and administration.
I don’t know if this is good or bad, but I think the logical conclusion is that the greater the population density, they greater the services offered. There should come a point, as any decent economist will tell you, that the marginal economies of scale curve will tick upward, and additional services will begin to increase in cost, at some point exceeding the cost of the smaller production level.
Note that not all of this is quantifiable in all areas, however. Say you lived in Florida: there is a value to living in a coastal area. Quantifying that value is difficult.
The other issue, is how do you allow access to the services provided by government? Do you ban people from one county from going to a park in another? Do you charge people from Lafayette more to attend a Colts game because the infrastructure is in Indianapolis’ county (sorry – live in Ohio, don’t know the local geography)?
There are some really interesting macro benefits, I think, but it comes with some huge logistical issues.
Oh, and I don’t even know how to begin looking at things like the state’s university system. Podunk Dave is screwed because IU is in Monroe county and he isn’t.
Are you saying our republican led senate over the past several decades has been approving redistribution of income? NOOOOO! Not here in Indiana, home of pence, burton, and the one fellow with a foundation who seems to have fallen off the face of the earth. Rhymes with Buyer, like in “I am a buyer of your votes”, or something like that.
Those gas taxes, vehicle taxes, utility taxes, income and sales taxes sure do get spread around. But what good would having nice roads or utilities in Indy be if we could not drive our fine new vehicles down to view the scenic areas of our state–or to enable them roobs to get their goods to market?
Does mitch agree that it is a good idea to redistribute income? He sure passes around that road money. And he wants to take your tax money and give it to private, religious schools. Not to mention funneling it into the pockets of certain blue players.
I started reading the report and almost immediately ran into assumptions that bring into question the conclusion that urban counties are subsidizing rural counties. The big issue is which counties to attribute tax incidence to. Consider the following from the report:
“The General Sales Tax is the largest source of revenue . . . (44.5 percent of total tax revenue). Sales tax revenue was allocated . . .on sales tax collections by county. Ideally the sales tax allocation would reflect the county of residence of the consumer. The data we use reflects sales tax paid by county of purchase . . .” . From page 2 of the report.
It seems pretty obvious that metropolitan counties have drawn a great deal of retail activity subject to sales tax out of the rural counties (keep in mind that some basics, such as food, are excluded from sales taxes), should they be allocated the taxes collected by the state from that? I’d guess that the incidence of sales tax falls on purchasers more than business. In addition highway fuel taxes are allocated by county where the sales occur. The interstate highways tend to run between metropolitan areas.
My conclusion, the report is almost pointless.
Keep in mind that the vast bulk of the “help” that the state gives Indy that so annoys the rest of the state – Lucas Oil Stadium tax, CIB, etc – is really in the form of changes that let Indy help itself. All of the funds were raised locally, not on a statewide basis, but since Indiana is not a home rule state, specific state authorization is required to do pretty much anything.
Theoretically, Indiana *is* a home rule state, Aaron. (See IC 36-1-3.) But your point is well taken.
What Indiana calls home rule is a joke.
This is why I’ve always been a fan of property taxes becauase you always know where your money is being spent. Sure, there are services the state provides that are a benefit to the entire state, but how does subidizing places like Parke County and Sullivan County benefit Indiana (no disrespect intended–I know they are lovely places and they grow very tasty melons and have pretty covered bridges)? It makes no economic sense especially when many of the donor counties–like Marion County–are getting killed by tax caps.
Doug, One of the first things that jumped out at me was the small counties with state correctional facilities. The urban counties don’t want state prisons in their backyard. Small counties are tickled to death just to have the jobs associated with them. You also pointed out the obvious in Cass County with the state hospital. What about the I-69 project under construction in small counties down south? Don’t the benefits of these major highway projects flow to the urban areas? Anyone with half a brain could rip apart the conclusions of this report. Obviously, the Fiscal Policy Institute had an agenda with this report. People shouldn’t be so easily fooled by it.
Maybe the reason urban counties subsidize many rural counties is that’s where the food is that allows big urban areas to exist in the first place? You need a fairly large (mostly unused) infrastructure to get the food from the rural to the urban (roads, bridges, power.etc) that are really only supporting a few rural residents, but without them, you can pretty much write off the large urban areas. (Yeah, I’m a farmer, how’d you guess?)
I’d add another reason to consider Steuben a ‘donor’ county: the lakes. ‘Lakers’ from Michigan and Illinois take over that entire county from April – September, bringing their out-of-state money with them. A blessing and a curse if you’re a year-round resident.
Having had time now to more fully read the document it appears more and more to me as designed to advance an agenda, and not to be scholarship in any sense of the word. The agenda appears to be to distort on the high side the contributions to the state of the Indianapolis area and to minimize the benefits that area receives. Highlighting some of the points of the paper:
The General Sales Tax constitutes 44.5% of total state revenue. It is attributed to counties where the sales take place rather than county of residence of the buyers. There is no reason to assume that the tax incidence is borne totally by retail establishments. This assumption distorts the revenue source picture in favor of metropolitan counties since they dominate retail trade.
The authors throw out individual adjusted gross income tax payed by out of state taxpayers. Most of this tax presumably comes from workers commuting into the state for jobs. This assumption would seem to diminish the relative contribution of border counties to the state tax take relative to interior counties. Here border counties such as St. Joseph, Allen, Vanderburgh, LaPorte, Steuben and Vigo that import more workers from out of state than they send out of state would have their relative contributions diminished.
Riverboat taxes, in contrast to sales taxes were attributed to county of residence of the gamblers rather than the home county of the riverboat. When the shoe is on the other foot the authors go to great lengths to protect the Indianapolis area’s contributions to the state’s coffers.
Turning to disbursements, the big, indeed overwhelming, numbers relate to education and transportation. Where the money goes is not really controversial. But there is a philosophical point to consider. Education of the young can be considered an investment in the future. In which case wouldn’t it be “fair” to take into account where children go after they finish their K-12 education? It has been clear for generations that many children in rural areas and small towns don’t stay on the farm but move to the cities. Rural areas have complained for years that it was unfair for them to carry the full cost burden of education when a third or half of the children they educated moved away when they finished school and the cities and larger towns they moved to gained the benefits of the rural areas’ “investment”.
This “investment” argument really comes out in the authors’ treatment of higher education. In the words of the authors, “the benefits accrue primarily to students receiving the educational subsidies.” Fair enough. But the authors use this to justify placing “the incidence of this expenditure on the home location of college students.” But college educated former students would seem to be the least likely group to return non-metropolitan areas. The authors’ arguments that it is students who benefit isn’t bad, but taking it a step further of attributing that benefit to where they came from is untenable.
The authors’ treatment of transportation expenditures is particularly ripe for game playing. First they observe that highway related expenditures on a county by county basis tend to be “lumpy” (that is, it varies a great deal) from year to year. OK so far. They go on to observer that this lumpiness tends to even out over a period of years. But having done this exercise of averaging, for purposes of the report, they looked “only at fiscal year 2009 expenditures.” They noted that this was “not a good representation of the overall equity in transportation funding to the counties”, but did not explain why they picked that particular year other than it was the most recent. I beg your pardon? Did they pick 2009 because Hamilton County had finished gorging itself on Major Moves money in 2008?
Speaking of Major Moves, and gasoline and fuel taxes, might I mention that the residents of Porter, LaPorte, St. Joseph, Elkhart and Lagrange counties have to pay tolls for access to their only interstate class highway, but they aren’t relieved of their obligation to pay gasoline and other fuel taxes when they do so. I see no suggestion that tolls paid to the privately operated Indiana Toll Road are considered a contribution to state coffers (or that the proceeds from the lease, which represent a capitalization of those taxes, were attributed to those counties).
Lastly, the authors totally ignore the distribution of federal funds, which is the single biggest source of state “income”. There is reason to believe that a substantial portion of this goes to Indianapolis, at least if the federal government’s claims regarding jobs “created” by stimulus funding over the last year have any validity:
http://www.recovery.gov/Transparency/RecipientReportedData/Pages/statesummary.aspx?StateCode=IN
I think I’ve raised at least a few questions about the authors’ conclusion that “the ten-county Indianapolis region paid 33.5 percent, or $4.6 billion, and received 28 percent ($3.8 billion) back.” I’s suggest that the paper is simply the product of an Indianapolis-centric interest group that is trying to answer the charge that Indianapolis and its collar counties benefit disproportionally from state spending.