Insanity has been famously defined as “repeating the same act over and over and hoping to get a different result“.
Millions of Hoosier are about to become quite upset when they see their 2007 property tax bills. The 2007 version of the Indiana General Assembly will be under extreme pressure to provide “property tax relief” for these justifiably angry constituents.
Most likely they will try to do so by raising other taxes, or allowing local governments to raise other taxes in the hope that this will somehow damp down the Property Tax Monster.
Big mistake. This approach certainly fits the definition of insanity. History shouts that this approach results only in the new taxes staying in place forever, and property taxes very soon rising right back to where they were, and poised to head higher still. It’s a bait and switch on the taxpayer.
Here’s the sordid history.
1933. Indiana enacts brand new personal and corporate gross income taxes. Political leaders promised these new taxes would be temporary (they weren’t, but that’s another topic) and would generate “property tax relief”. There wasn’t so much as a hiccup in the trend line of increasing property taxes.
1963. Indiana legislature enacts a brand new sales tax at a rate of 2% (you now pay 6%) and changes the 1933 personal gross income tax to an “adjusted” gross income tax at a rate of 2%–the one you now pay at a rate of 3.4%. Not to worry. The taxpayers would get “property tax relief”. Guess what? Property taxes kept going up.
1967. Those new 1963 taxes were dragging in more money than expected, so the legislature decides to give 8% of the dough back to local governments for “property tax relief”. They spent the money. The most brilliant computers couldn’t find a blip in the trendline of upward marching property taxes.
1973. In the most determined assault on rising property taxes, Governor Otis Bowen doubles the sales tax to 4% and enacts new corporate taxes. He puts tough taxing controls on local governments and schools. By 1980, property taxes are indeed down by about 25% in inflation adjusted terms. He leaves office in 1981, and by 1986 property taxes are right back where they were in 1973 in inflation adjusted dollars, ready to roar higher. Plus we are forever stuck with higher sales and corporate taxes.
Today we are once again hearing our political leaders talk about yet more plans to raise various taxes to give “property tax relief”. They are no doubt sincere but they will have no more luck than their predecessors. If Doc Bowen couldn’t pull it off, no one can.
How many times do we have to kick ourselves in the teeth–the insanity definition, you remember–to figure out that the raise-taxes-to-partially-replace-property-taxes schemes have never worked?
Is there then no hope for the beleaguered property taxpayer? Well, yes there is, and the solution is almost laughably simple. Abolish the property tax. Rip it up by the roots. Get rid of the assessment and collection mechanisms so it can’t grow back. Don’t try just to prune it back. The pruned property tax plant grows quicker, as we should know by now. Referring to his namesake, Pope Benedict XVI is fond of quoting a Benedictine motto: “Succia virecit”. Pruned it grows again. That’s fine for Christianity, but it shouldn’t be our objective for property taxes in Indiana.
Abolish the property tax? Radical idea? Not really. In the “property tax relief” discussion, anything less than getting rid of it entirely is the radical idea, because history teaches anything else leads to both higher non-property and higher property taxes.
Let’s debate how to abolish the property tax, not how to give “property tax relief”. I have a feasible plan that involves about a 2% average increase in income taxes for cities, counties and towns and a 2% sales tax hike for schools. Doubtless someone else can come up with a better one. There will be some pain involved. We cannot simply abolish the property tax without something else in its place.
But, in exchange, we’d be rid of the property tax forever. That’s a trade I, for one, would willingly make.
Mr. Styring is a former state budget official and former senior fellow at the Hudson Institute. He can be contacted at firstname.lastname@example.org.
* A condensed version of the editorial appeared in the Indianapolis Star on Sunday, January 21, 2007.