A Citizen's Guide to Indiana

Ezra Klein has an interesting column (h/t Paul Roales) looking at where the Laffer Curve bends. The basic explanation of the Laffer Curve – and I am capable of no other – is that, on one end, taxes can be so high (e.g. 100%) that no one will bother working and tax revenues will be down and that, on the other end, taxes can be so low (e.g. 0%) that the government will capture very little tax money. Government wants to find the top of that curve – capture a lot of tax money without discouraging it’s citizens from being industrious. This is of some interest with the Bush-era tax cuts expiring and the Clinton-era tax structure reviving.

Klein interviewed a bunch of people and tried to get a sense of where the top of the curve might be. The tax experts and lefties he spoke to seemed to offer up a top marginal rate of 70% as the peak of the curve. The folks on the right he spoke with seemed more reluctant to offer a number but, where they did, seemed to fall in the 20-30% range. They also cautioned that, while short-term revenues might increase at higher levels, there was also a risk of limiting growth and, therefore, long term gains.

I can’t articulate it well and, may just be wrong, but my guess is that low rates are associated with an incentive to just move money around instead of doing different kinds of work that contribute more to productivity in the long term. About the best I can offer is that, if you can gamble, hit a jackpot, then walk away with enough money to quit the game, you might not bother with the harder work of creating a system that generates lesser, but steadier, gains year after year after year.

This has to be tough for everyone involved. The Hancock County Sheriff has been arrested on charges that he had been diverting public funds to personal use. It does provide a minor civics lesson, however. The County Coroner is charged with arresting the Sheriff in these situations, since the Sheriff isn’t, obviously, available for the purpose.

IC 36-2-14-5 charges the Coroner with serving an arrest warrant on the Sheriff and entrusts the Coroner with the jail and its prisoners while the Sheriff is in custody.

The Urbanophile has an interesting post on the demographics of property tax revolts.

He offers the speculation, without concluding, that resistance to property taxes versus other kinds of taxes might have something to do with the aging population.

People who are coming up on retirement are going to see drops in income and consumption, but they own lots of taxable property. In fact, they probably have more wealth, much of it in the form of taxable property, than the younger families who are out buying clothes for their kids, furniture for their growing families, etc. Younger people are also those who are more likely to see their incomes go up, not down over time. Older households are also less likely to consume services, such as schools, typically funded by property taxes.

This would make property tax caps a sort of tax shelter tending to benefit older people. This goes to the point that, here in Indiana, we’ve been engaged in a tax shift, not so much “tax reform” or “tax relief.” I don’t think it’s an accident that the sorts of taxes that have gotten the most attention – estate taxes and property taxes – are those which disproportionately affect those of means. There hasn’t been nearly the push for payroll tax relief or income tax relief or sales tax relief. In fact, those taxes have tended to increase as the other sorts are limited or eliminated.

(I’m paraphrasing). According to an AP story, Everybody’s Favorite Economist ™, Larry DeBoer, says that 2011 is going to be the year that the recession hits local governments, with an 18-20% drop in income tax revenue for counties statewide.

Professor Larry DeBoer told a meeting of Allen County officials on Tuesday that 2011 will be the year the recession hits local governments in Indiana. DeBoer warned that with less money from property tax, local governments will have to rely more on unstable revenue such as income taxes and fees.

(It’s worth noting how we got to where we are.)

Sophia Voravong has a good and lengthy article in today’s Lafayette Journal & Courier on embezzlement cases in Tippecanoe County. Special attention was paid to embezzlement from small, non-profit type organizations. The psychology of the embezzler stood out to me:

Although greed is a possible factor, people who steal from nonprofit organizations and small businesses typically begin doing so out of perceived necessity — for example, outstanding medical bills or rising credit card balances, according to Tony Greig, a continuing term lecturer in the Krannert School of Management at Purdue University.

“They say they’re just going to borrow a small amount and pay it back,” said Greig, who teaches a class on forensic accounting. “They do that a couple of times and realize, ‘No one’s seen anything, so why pay it back?’
. . .
“In many cases, they rationalize that, ‘I’m a volunteer for a club. I’m doing work that it may cost others to do.’ They feel they’re entitled.

“They have to come up with some sort of rationalization because people have to live with themselves.”

I think I’ve mentioned the creative writing teacher who gave us a nugget of wisdom for writing about people who do bad things to the effect that everybody is the protagonist and basically a good guy in their own internal narrative. I suspect that goes a long way toward understanding the psychology of these people. Or, you know, Guns ‘N Roses sing about Mr. Brownstone, “I used to do a little but the little wouldn’t do it, so the little got more and more.”

The Lafayette Journal & Courier has a pretty sensible editorial discussing how the current school funding issues are the result of actions taken by the General Assembly on property taxes. They note that shifting school funding from property taxes to sales taxes has led to the current shortfall for local schools.

They blame the current state of things on partisan bickering. I’m not sure that’s the case, necessarily. It’s a policy choice to rely on sales tax instead of property taxes. If the vote to proceed in this fashion was unanimous, it wouldn’t make the policy any more successful. And I’m not sure that full cooperation among lawmakers would have made the ideal solution any more obvious. In hard times, there is just less money to go around. The choice is between a funding mechanism that reflects this hardship and passes it along to schools or one that stays level, thereby taking proportionately higher amount of available money. The former is fair, but sacrifices education; the other preserves education but does so by making the tax bite bigger.

In any case, the J&C cautions against enshrining the current property tax caps into the Constitution — this, once again, changes nothing currently but only ties our hands in the future if we find that this is the wrong policy choice — it’s a caution I share, but I think that ship has sailed. Perhaps I’m cynical about my fellow citizens’ ability to see nuance beyond “taxes = bad” and to appreciate the difference between a statutory provision and a constitutional one. I think the Constitutional amendment will pass in a landslide and we’ll be no better off for it.