The majority caucuses in both the Indiana House and Senate reserve the lowest-numbered bills for legislation generally regarded as their highest priority. With that in mind, consider that House Bill 1001 and Senate Bill 1 each would cut personal property taxes on businesses – at great expense to cities, counties, schools and libraries.
As local government officials warn of the dire consequences of Gov. Mike Pence’s proposed tax cut, lawmakers should explain to voters why they are rushing to further reduce taxes on businesses. Don’t they already boast of the state’s low-tax climate? More important, they should explain why businesses offering high-paying jobs would want to locate in communities with underfunded schools, deteriorating infrastructure, neglected parks, outdated airports and unreliable city services.
House Bill 1001, which gives counties the option of eliminating the personal property tax, would pit regions and counties against one another, according to testimony before the House Ways and Means Committee Tuesday.
“We’ve come so far in economic development in Indiana, and this is no time to move backward in our strategy by pitting communities against each other,” South Bend Mayor Pete Buttigieg said. “Places like South Bend can’t prosper by scheming for a bargain. Racing to see who is going to be the cheapest, even if it means cutting schools, cutting libraries, cutting roads, cutting parks, cutting police. If our neighbors are doing it, we are going to be forced to do it too, and then everybody will be worse off.”
He is right to be concerned. Personal property tax revenue amounts to 16 percent of total property tax collections. Because the state limits revenue local governments can raise from property taxes, the property tax levy is affected by total assessed value. If personal property tax is eliminated from the assessment, the tax rate will increase to raise the same amount under a maximum levy.
“With the levy limited and assessed value smaller, most tax rates would go up,” writes Larry DeBoer, professor of agricultural economics at Purdue University. “Personal property owners would pay less, but higher tax rates would shift this tax burden to everyone else.”
The decrease in local revenue comes from the state’s tax caps. Where homeowners aren’t already paying 1 percent of their home’s total assessed value, tax bills will increase; where taxpayers have already reached the cap, the revenue to local government is simply not collected. That’s why the effect is greater on some taxing units, like the Northwest Allen County Schools district, where many homeowners have reached the cap.
If personal property taxes are eliminated and as the burden to make up those dollars falls to homeowners, according to an estimate by the nonpartisan Legislative Services Agency, NACS would lose an additional $1.1 million a year to the tax cap because more homes would hit it. That means the total annual loss due to the tax cap would be $3.6 million.
Statewide, property owners who haven’t reached the cap would pay an additional $375 million a year to make up for the break given to business owners.
The Senate version of the personal property tax bill represents a kinder, gentler cut on local units of government but a cut nonetheless. The bill would exempt small businesses with $25,000 worth of business equipment from personal property taxes and would reduce the corporate income tax rate from its current 7.5 percent rate to 4.9 percent by 2019.
With all members of the House and half the Senate facing re-election in November, pressure from business interests bearing campaign contributions is tough to resist. But Indiana voters should remind lawmakers that only California has a state sales tax rate higher than Indiana’s 7 percent.
Why the rush to appease businesses? Why not subject the governor’s proposal to thorough study and revisit it after Election Day?
