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INDIANAPOLIS – Local governments around the state have been hesitant to increase the income tax in exchange for property tax reductions, even though the results would be dramatic in some counties.
Locally, several city and county councils have considered the option – and then decided to delay action. That was based on a decision deadline of Aug. 1.
But Gov. Mitch Daniels’ extension to Oct. 1 – and angry Hoosiers just getting their tax bills in some areas – could force another look.
“I’m thinking that we should definitely consider looking to switch over at least some portion from property tax to income tax,” said Fort Wayne City Councilman Tom Smith, R-1st.
Smith previously pushed for a delay of at least a year before taking action. But recent property tax developments have him reconsidering that stance.
“Should we stick our toe in the water and see what a quarter or a half percent would do? That’s an option we should discuss,” Smith said. “The governor has given us more time. This lets us talk to people in our neighborhoods to see if they understand and if they can give a more informed opinion.
“We need to get a better read from our citizens because all of us are confused.”
Legislators in April passed a bill that would allow local officials to raise local income taxes by up to 1 percent if the money is used to directly reduce property taxes on a dollar-for-dollar basis.
Allen County uses the county option income tax, and state law gives Fort Wayne City Council the authority to raise the tax for the entire county because most Allen County residents live in Fort Wayne.
Other counties use the county adjusted gross income tax, and the county council would make any decision to increase the rate.
Daniels said again Tuesday that this option is needed to reduce local government’s reliance on property tax, instead focusing on income taxes.
“Most people all agree that what we are talking about is shifting the balance,” he said. “The money all comes from the same people. The question is ‘what’s a fair balance?’ ”
This discussion is just part of the ongoing brouhaha over residential property tax bills, which are expected to rise an average 24 percent statewide because of local government spending increases and changes in state assessment and property tax subsidy policy.
Allen County’s average homeowner increase is projected at just 12 percent, but Rep. Win Moses, D-Fort Wayne, said that doesn’t mean people aren’t hurting.
“It’s all anecdotal at this point, but even if it’s only 12 to 15 percent increase instead of 24, that’s still pretty large,” he said.
The question is will taxpayers who have historically criticized property taxes as unfair because they don’t take into consideration a person’s ability to pay prefer to pay more income taxes?
According to a June 18 presentation by Larry DeBoer, an agricultural economics professor at Purdue University, the income tax is a less stable revenue source and the implementation of an increased income tax will have varying affects.
For instance, those who are property rich but income poor will tend to pay less. Examples of these people are farmers, corporations that pay the corporate income tax and retired homeowners.
Likewise, those who are income rich but property poor – renters and most employed homeowners – will tend to pay more.
DeBoer also released data on how a 1 percent income tax increase would affect property tax bills in all 92 counties. Here are three examples:
•The average residential property tax bill in DeKalb County is $694 for a home assessed at just over $100,000. A 1 percent income tax hike would cut that bill to $233 if the relief was given to homeowners only. If the relief was given across the board to all taxpayers, bills would drop to $552.
•The average residential property tax bill in Kosciusko County is $885 for a home assessed about $147,000. A 1 percent income tax increase would bring the property tax bill to $101 if the relief was given to homeowners only. If all taxpayers were included in the relief package, the bills would drop to $660.
•The average residential property tax bill in Allen County is $1,476 for a home assessed about $147,000. A 1 percent income tax increase would cut that bill to $675 if all the relief went to homesteads or $1,147 if all taxpayers were included.
Benjamin Smaltz, president of the DeKalb County Council, said his panel discussed the option last week but didn’t feel comfortable making such a big decision by the original Aug. 1 deadline.
“If you run willy-nilly with good intentions there is a good possibility that you are paving the pathway to doom,” he said. “I don’t mind making decisions with 80 percent of the information, but I don’t like making the decision with 30 percent of the information.”
Tax bills are not yet out in DeKalb County.
“I want relief, but I want responsible relief,” Smaltz said. “I don’t want to give relief and have it end up costing more down the road and it winds up being just a new tax.”
This is a view held by many taxpayers like Whitley County resident Steve Heaston.
“I believe that the system we’ve got can be fixed,” the former Democratic assessor candidate said. “If we go to a 1 percent income tax, the property taxes will fall at first but will just rise again until we are in the same situation again.”
Smaltz added that all the talk about having a special legislative session just adds more confusion to the situation because no one knows what Daniels and lawmakers might do.
“The thing about the income tax is it would be more variable because of the ups and downs in employment though it might be a little more of a fair tax,” said Bill Booth, president of Steuben County Council. “What scares me most is now they are talking about a special session, and who knows what would happen then? They have made it so complicated that no one can understand it.”
Meanwhile, officials in Kosciusko County are set to discuss the option soon.
Jeff Grose, a member of Warsaw City Council, said the county council controls the vote, but he doesn’t believe it will happen.
“There are so many variables, and there will be winners and losers,” he said. “I think it is a good idea to give local governments more autonomy, but I’m concerned.”
nkelly@jg.net
