Curt Slyder, writing for the Lafayette Journal & Courier, has an article on property tax relief. At the moment, property tax relief proposals are mostly dead, but such things can generally be resurrected with enough legislative effort.
Everybody’s favorite economist, Larry DeBoer (follow “Capital Comments” link), explains why this is a big issue:
The reasons why property tax reform is on people’s minds go back a few years, said Larry DeBoer, a Purdue University professor of agricultural economics.
The Indiana Supreme Court decided in 1999 that the state’s property tax assessment methods were in need of reform.
“Since then, there have been many changes,” he said.
A reassessment in 2002 shifted property assessment to a market-value basis. In 2006, properties were assessed again to show market value changes since the initial Supreme Court decision.
This year, counties will complete elimination of the business inventory tax, which will shift taxes to homeowners. At a recent meeting of county treasurers, DeBoer predicted residential taxes will go up 15 percent on average this year compared to last.
Those tax bills are due out in the next few weeks and could increase pressure on legislators before the session ends April 29.
Senator Kenley has a plan that consists of three components:
The state would pick up local governments’ share of funding for juvenile incarceration, 100 percent of the child welfare expenses and 100 percent of general fund expenses for public schools.
The State would use money from the property tax replacement fund to pay for the state’s new obligations. So, on the one hand, counties would lose a significant amount of income, but on the other hand, they would lose a significant amount of liability. The state doesn’t necessarily need to rely on property taxes to meet its obligations. Counties are limited by the General Assembly as to their taxing authority and, therefore, they have less flexibility in how they can pay for their obligations.
Reliance on property taxes is problematic. The property has value, but it doesn’t necessarily generate the wealth needed to pay a tax. On the other hand, the taxes are going to come from somewhere. If we shift it to an income tax, are we unfairly adding to the burden of wage earners who own no property while unfairly benefiting owners of large amounts of property? I guess that’s for our elected representatives to decide.
What I can’t understand is why the taxes never seem to get shifted to the businesses any more. Here they are shifting more taxes on the workers and onto the property owners, but business gets another tax break. It’s not as if they don’t have enough tax loopholes, abatements and deductions as it is. I’d like to see the corporate world start paying their fair share again!
I suppose the theory is that: 1) Businesses add more than they take by employing people who pay taxes; 2) “They” are “us,” the thinking being that the profits from businesses will be passed along to employees and owners who will then pay taxes on that income; and 3) Business will locate elsewhere if we tax them.
I don’t necessarily endorse these positions, but I think that’s a fair description.
I realize that the post started with the property tax, so some of this may sound like a digression onto a somewhat general treatment of taxes. But the cost of taxes can only be carried by individuals, never by “business”. Business is simply a word for a web of relationships related to an economic activity. Taxes may depress a given business, but it is never “business” who pays them in the ultimate sense. Taxes can only deprive a living, breathing human of the wealth that they otherwise might spend on something. This shouldn’t be taken as a general condemnation of taxes. The wealth collected, can when spent on ports, well routed highways, airports amd education encourage growth in economic activity.
Who profits from a propety tax break for a factory, the owners of the factory, the management of the company, the workers employed to work in the factory, or the consumers who buy the factory’s output? Most would say that consumers, not “business”, pay the “sales tax” on purchases, but is it so clear whether it is the customers or the owners who pay the income tax imposed on businesses?
As to the depressing of economic activity, do property taxes, in the long run, depress manufacturing and encourage people to gravitate toward activities that don’t require investment in land and buildings which attract property tax?
Any given situation demands a look at how much monopoly power the business has and the elasticity of demand for the products it sells before one can even guess at the ability of the company to transfer the costs of taxes to its customers. A look at the tobacco industry and its ability to profit, even in the face of ever increasing taxes on its product and the costs of its legal settlement with (most of) the states a few years ago, suggests to me that smokers pay most of the tobacco industry’s income taxes. In the 1950’s and 60’s the UAW’s hold on the auto industry was so complete, and the hold of the big three on the buying public so close to a monopoly, that labor and the owners of the big three could transfer all most all tax costs to buyers, typically not in high prices. The high price was disguised as a shiny, but shoddy product. Still, the tendency of prices in countries which impose a VAT to be higher on a given product than in countries which don’t impose VATs suggest that the form of the tax isn’t completly irrelevent.
Again, the question in any tax regime is whether the cost of taxes is being carried by labor, consumers, management, or by the owners of capital. Secondly consideration can be given to what extent the tax works to depress certain activities. Considering the federal income tax I think that unionized labor did well in the decades after World War II. The exclusion of the costs of group health insurance plans paid for by the company from income was a huge gain for labor over the self employed. The ability to defer recongnition of gains in stock was a huge boon to owners, particularly management/owners.