STATEHOUSE DISPATCH: Property-tax abolition isn’t off table after all

Lawmakers had their individual and collective eyes opened last summer by scores of organized and impromptu property tax rallies across Indiana.

While many who carried a sign, marched in the streets, or wrote a letter to the editor about the situation simply thought their individual taxes were too high, a good number of them (and several of the organizers of such events) had a special goal: the elimination of property taxes.

Even after the municipal elections woke up the few remaining elected officials who had downplayed the significance of the voter protests, the debate seemed to have shifted away from the radical proposal to abolish property taxes. Instead, officials started drafting plans to reduce local government reliance on property taxes.

Cutting local government spending, shifting some of the funding burden to the state for key mandates, and forcing local governments to impose local income taxes to provide property tax relief could significantly trim property taxes.

Gov. Mitch Daniels proposed his property tax reduction plan, and the Commission on State Tax & Financing Policy offered a plan with deeper cuts, after first hinting it would not do so. Rep. David Orentlicher, D-Indianapolis, also unveiled a proposal that would further trim reliance on the new most-reviled tax in the state.

So the focus shifted from the votersought abolition to a more temperate approach to the issue: moderating the impact of property taxes.

Policymakers did so not simply because the white heat of the 2007 election cycle was behind them. It also was because of the hue and cry they expected from the electorate as a result of any shift in the tax burden that would necessarily result from trying to raise $6.9 billion annually, the amount Legislative Service Agency analysts project would be raised from property taxes in fiscal year 2009.

Voters would not tolerate the huge increases in individual income taxes and sales taxes necessary to replace the property tax revenue, they reasoned, and the state (and particularly retailers in border counties near Chicago, Louisville and Cincinnati) would be at a competitive disadvantage with a high sales tax.

But the nature of the property tax debate may have fundamentally changed in the first week of the legislative session, and it will be interesting to hear how-or if-Daniels will respond to that shift in his State of the State Address Jan.15.

If property tax elimination returns to the table, you can point to the day lawmakers returned to the Statehouse in 2008 as the turning point.

Senate President Pro Tem David Long, R-Fort Wayne, could have “protected” his members from a debate on-or having to vote against-the politically popular abolition issue by simply taking it upon himself to keep such a measure from debate or a vote. He could have taken the heat himself, much as his predecessor had in similar situations involving potentially divisive issues.

But Long has a more diverse and outspoken caucus than his predecessor presided over, and he has pledged to be directed by his caucus. He assigned the constitutional amendment resolution authored by Sens. Mike Young, R-Indianapolis, and Brent Waltz, R-Greenwood, eliminating the property tax to the Rules Committee, which he chairs. Long then opened it up for long hours of orderly testimony and debate on the first day of the session.

And a funny thing happened to the resolution on the way to an anticipated “fair trial” before it was hanged. Hoosiers from all around the state showed up to back SJR 8, and the two most prominent leaders of the populist movement, attorney activists Eric Miller and John Price (both former gubernatorial candidates themselves), served up numbers backed by Indiana University economists that showed abolition of property taxes for homeowners could work-as long as it was combined with tough-love spending cuts, and moderate sales and individual income and unspecified business tax hikes.

Those replacement mechanisms, they contend, would be acceptable to Hoosiers, and would prevent business from being the major beneficiary if only sales and individual income tax increases were imposed.

Long’s eyes were opened by the debate, as were those of some of his previously skeptical colleagues. Elimination now seems back on the table, at least for homesteads.

One major item now to be reviewed is one first advanced by Sen. Luke Kenley, R-Noblesville, and the tax policy panel: an expansion of the sales tax to certain services. An expansion, favored by many legislative Republicans, could permit a lower overall sales tax increase, making abolition more palatable to some who initially questioned the realism of advocates.