Rep. Orentlicher will apparently introduce tax shift legislation. Specifically, his proposal will lower property taxes and raise sales and income taxes. This would be good for people who pay relatively more than others in property taxes and relatively less than others in sales and income taxes. The elderly immediately jump to mind as people with high property value to income ratios. Perhaps farmers as well. People who have kept their property purchases modest compared to their income would probably do worse under the plan.
One thing that seems to recommend itself to the tax shift is that sales and income taxes are generally seen as easier to implement because valuation is not a problem. I suppose this is the case any time you tax transactions instead of wealth itself. The parties themselves have set the value (employer/employee – seller/buyer), and the government simply needs to impose a tax rate. The devil is always in the details. I wonder if Rep. Orentlicher’s plan will add a level of complexity to prevent the tax shift from being regressive — reducing taxes on wealthy owners of high value property while increasing sales and income taxes on those with more modest means.
Wait and see, I guess. One thing that kind of worried me was the implication that he would try to get this thing passed in November without full vetting by the legislative process. Maybe I misread this paragraph:
He plans to introduce it to lawmakers in November so that the changes can be made before the 2007 tax bills are re-issued in the spring.
Bad idea. This is too big to rush through, no matter how solid the reasons or the magnitude of the temptation to DO SOMETHING now.
Wouldn’t this put more of a tax burden on the poor? As someone on disability, I don’t want to have to pay even more in sales tax. That percent adds up – and everyone poor or rich has to shop. The extra 1% on Reynolds Wrap and toothpaste may not seem like a big deal, but when you start taking that 1% out for everything non-food that equals a bigger chunk out of someone who only makes 10k/year as versus someone who makes 100k.
Add onto that another increase in the income tax – which most wealthy Hoosiers avoid paying fully due to loopholes for the rich and the ability to hire tax advisors – and it seems all of this would come on the backs of the poor.
Most of the working poor don’t own property now and aren’t affected by the property tax. The rich, however, are affected by property tax. And you’ll notice that all the wealthy, white Meridian/Kessler folks are attending tax rallies and screaming to high heaven that their mansions’ tax rates went higher, but in the poor neighborhoods where the tax increased the most there’s nary a peep. Oh yeah, those rich folks OWN those houses TOO – we’re mostly rentals down here.
This idea is just a shell game. Orentlicher is trying to pick new winners and loser based ont he screaming he hears. Well, that’s how politics goes, isn’t it?
In order for there to be real relief, the cost of government is going to have to be cut. Otherwise, a shell game masquerading as relief is the best anyone can hope for, and that’s not much: It’s just a screaming game, then.
To be fair, this critique shouldn’t fall sqaurely on Orentlicher. He’s a state legislator addressing a problem of local government. The City-County Council in Marion County is where the cutting leadership is needed, but will almost assuredly not come. (This is why I moved out of Marion County in 2003. Could see this coming from a mile away.)
Simple economics/business management thoughts 101—any shifting of taxes to another party should be made with an economic reality. Any plan that simply shifts taxation to those with more income or property and seek to protect the low income or fixed income or whatever is not really feasible. A tax plan should have an component that taxes people for the services received—thus to seek to not tax a group because of low income simply means others are paying for services to others. Carried to extremely really is a very socialist idea.
The idea that taxing businesses relieves others is of course not reality—businesses have to pass the tax on to their customers or go out of business. Just as the idea that renters (homes or buildings or land) do not pay property taxes is not realistic since the property owner must pass on the tax in increased rent or lose money.
Sometimes the easy answer is not filled with reality.
Sales tax with minumum exceptions meets many of the objectives of a fair tax in that likely to being paying based on use of government services. Therefore, large families with large number of children in school are paying their way, etc.—choices made have consequences.
Now these thoughts should bring reaction.
I like Rep Orentlicher on balance, but this move has more to do with satisfying his consituents (older Washington Township/Meridian-Kessler/Butler Tark homeowners) than any sort of a principled stand. I don’t necessarily have a huge problem with this move as long as there is a progressive income tax. If the income tax remains flat, this will amount to a shift of tax burden to people who have jobs and either rent or live in modest homes, and away from people who don’t work but own expensive homes.
I’m an attorney, so I don’t expect anyone to feel sorry for me, because my profession should prove lucrative in the long run. At present, however, with student loans and private health insurance and an associate’s income, I’m not rolling in it, and I live in a modest, inexpensive house. But given the realistic numbers thrown around if the property tax is abolished, my state tax burden will double. It seems to me that such a move will burden lots of young families, folks with solid incomes but lots of (legitimate, not extravagant) expenses living in starter homes. I realize DO isn’t proposing abolishing property taxes, but any move away from property taxes will shift the tax burden away from the landed gentry and onto people who work for a living.
I’ve always wondered whether this is 100% accurate. My formal economics education consists of a 9 week class in high school, so take it for what it’s worth. But, it seems to me, if you tax businesses, they might not be able to easily pass all of the tax costs along to customers. Given competition and some friction involved in raising prices, some of the cost would probably get paid for by diminishing profits or cutting expenses in other areas. (Less money to lobby the General Assembly, perhaps?)
Well without too much expansion on it—I do have a degree in economics and taught variety of production and general economic principles for 38 years (high school level)—one of the most basic management accounting principles is that businesses to exist in the long run must cover the “dirti 5”–D=Depreciation, I=Interest, R=repairs, T=taxes, and I=insurance. These are collective known as “fixed cost”. One can operate in the short run by covering variable cost only—but simply living on borrowed time (past investments and “savings”.)
Passing on taxes –sooner or later–has to happen (and the additional costs of records and reporting of the income/expenses in determining the taxes). The amount of expense needed to simply comply with tax reporting —as Doug, I expect you could concur with–can become rather oppressive as a cost factor.
And as a side note have spent several years directly and indirectly involved in local government position and have reluctance to totally endorse those that say it should be easy to cut local spending—the problem is whose ox shall be gored. Come from a low income county–for example: our Sheriff’s department is the training grounds for other law enforcement agencies—we train them then with that experience they go on to other places–such a turnover does not serve the county well. For many years our school system had the same problem until became somewhat more competitive with other schools—but not with private employment.
It would be great to receive a report from the state committee that defines well a truly fair means of taxation that also provides income security to those agencies (state and local) that are needed and need the income to provide the level of services demanded.
I think I need some education on this… how is Orentlicher’s proposal on a state-level so vastly different than the state offering counties the option to do it on a county level? Doug, weren’t you praising your county for having shifted some of the taxes to a local income tax to offset the inventory tax losses?
On a completely personal level… I’m in a modest home and pay far less taxes now (even if my house were assessed at market value) than I would under an income/sales tax increase.
Regardless, I too hope this won’t be pushed through without adequate study. 1) who is suffering the most from the current system (that’s *suffering* as in “unbearable burden” not who is paying the most $$) and 2) will the proposed shift relieve that group without creating a different group of sufferers?
I was. The State had forced the issue by eliminating the inventory tax. The question wasn’t whether the tax burden was going to be shifted, merely to whom. Either it was going to go from inventory tax payers to property tax payers or from inventory tax payers to income tax payers.
The result was that the property tax problem wasn’t quite as egregious in Tippecanoe County as it seems to have been elsewhere. I didn’t really even notice the increased county income tax.
Whether Orentlicher’s proposal can work is probably a matter of degree. Just how much property tax is he proposing on shifting?
I don’t think that this is a bad idea in theory – as the earlier article by Larry DeBoer indicated, most of the tax increase felt by people in places like Marion county was due to changes in tax policy, not changes in local spending. In MC, the tax increases (35% overall) were much higher than the spending increases (5%). Since it seems that tax policy has created the problem, it makes sense to me to fix it by having a new tax policy.
Of course, the real question is whether *this* tax policy fixes things…and I have no idea.
You have to look at state spending as well — the State balanced its budget, in part, by cutting the subsidy it had previously given the counties.
I find it interesting that now that the property tax situation is affecting “Mecca,” Orentlicher reacts. In northwest Indiana, the property tax burden has been placed mostly on the elderly and poor who live in the more urban areas (Hammond, Whiting, Gary). Living in Schererville, an area that is primarily residential, my bill changed little. (Let’s put it this way, if my house magically moved to the Miller section of Gary-and retained its full value, I would be paying $15,000-$20,000 more in property taxes per year!)I moved here in 2002, and the property tax situation in Lake county has been bonkers the whole time. In our county, I have a feeling that a mixture of income tax/sales tax increase would make the tax burden more fair. Something has to change!