Tuesday, September 04, 2007

LSA Numbers On Elimination Of Property Tax Dubious

There's an old saying that numbers never lie but liars always figure. That was a thought that entered my mind when I read the estimates prepared by the Legislative Services Agency for replacing the property tax in Indiana with alternative taxes. Sen. Luke Kenley, who chairs a legislative committee studying the property tax problem, says a plan such as that suggested by Eric Miller of Advance America, doesn't work, citing figures prepared by LSA. According to Patrick Guinane of the Northwest Indiana Times, LSA told lawmakers the sales tax would have to be raised from 6% to 13.2% and the income tax would have to be raised from 3.4% to 9% or, alternatively, the income tax would have to be raised to 6% and the sales tax to 9.5%.

Now, helping out Miller on any issue is one of the last things I want to do, but clearly LSA's numbers are deliberately skewed to make the alternatives look as unattractive as possible. Note first of all that those numbers completely omit the imposition of any new taxes on businesses to make up for the loss of property taxes they would pay. Miller's plan does include a plan to impose a new tax on businesses, which is projected to raise $500 million. Lawmakers have already eliminated the inventory tax without replacing those lost revenues. And businesses pay very little in corporate income taxes to the state of Indiana; most pay little or nothing. You might be surprised to learn that the state of Indiana collects more from gaming revenues than it does in corporate income taxes. Indiana's tax system is based on collecting as much as possible from individuals, while letting off businesses as easy as possible.

So by providing lawmakers with tax increase numbers which require individuals to shoulder the entire responsibility for raising taxes to replace the property tax, LSA is doing exactly what lawmakers like Sen. Luke Kenley, who are opposed to the idea of eliminating the property tax, wanted it to do. Make the alternative look worse than the current system. Miller claims his plan would require the sales tax to be increased to 8%, which is about what the current rate is in Chicago, and the income tax would have to be increased to 4.4%, not the doubling and tripling of the taxes as suggested by LSA. The idea of eliminating the property taxes is one that should not be undertaken on a whim or without considerable study, but lawmakers should at least use honest numbers when discussing the idea so we know their work is being done in good faith.


Anonymous said...

Someone ought to take a look at how Tennessee does it. 9.5 sales tax, they have property taxes but the DO NOT have taxes on INCOME.

Gary R. Welsh said...

Florida and Texas don't have an income tax either.

Anonymous said...

And Tennessee is no great model of: public education, post-secondary education, good roads, or good government. That state gave us, on either side of the aisle, Fred Thompson and Al Gore. One effed up a television show and a term in the Senate, the other gave away the presidency in 2000. I rest my case.

The problem here is: if you change the tax system, which I favor, you'd better do it right the first time. Because those who do it will likely face the voters' wrath unless it's almost 100% perfect. Sad but true. Hoosiers aren't very forgiving of massive overhaul, which is why we tend to do things slowly...which often works. It won't work for this system.

And even our idiotic legislature knows that. Ergo, little political courage exists. Fewer brains exist. It's no accident that one of the only Ivy League-trained legislators (Kenley) is chairing this commission.

Business taxes, and by inferrence farm taxes, are so low in this state, because for so long, the Indiana Manufacturers' Association, state Chamber, and Farm Bureau ran the legislature. I sense that tide is changing, or Kenley's commission would never have gotten off the ground.

In a legislative session late in the 90s, the chair of House Ways and Means actually took the final biennial budget crunching to the IMA president standing in the hall, and they openly discussed how to make it better for manufacturers. They didn't even try to hide it.

A higher corporate tax, coupled with a realistic property tax based on actual, verified property value, is the best bet. Our corporate tax and business climate compares very favorably to other states'. An uptick wouldn't kill existing or new businesses.

Eric Miller got some of it right. He's no dummy. Just a panderer.

Even panderers get it right sometimes. For evidence of that, see Bob Draper's new book, out this weekend, on the Bush White House.

Doug said...

I'd go easy on accusing the Legislative Services Agency of deliberately getting any numbers wrong. If you want to argue that they got it wrong, that's fine, but in my experience the folks at LSA try pretty hard to play it straight.

Obviously this sort of thing gets my hackles up specifically because of my past experience at LSA. I do have a bias.

Gary R. Welsh said...

Doug, I think LSA carried out their orders and prepared the numbers the way legislative leaders wanted them to appear. It wouldn't be the first time that has happened.

David C Roach said...

So what about the criminal conspiracy to "fix" property taxes; to hide Indiana's sluggish real estate market?
No speculators market here. No "flip this house"- your profits will be eaten up by paperwork fees.
So lets look around the US, and the world, and see whats working. where are the citizens going? which way is the "brain draining?"
California has many citizens benefits- health care, free college education. Whats finland, sweden, scandanavia, norway doing? What about off shore banking havens? or internet gambling sites? I notice that Nevada has lots of people moving there- I guess thats where all the money is? MJ is a state constitutional right. gambling - Resort hotels, and casinos are legal. Lots of tourist dollars.
So why cant FTW get any of this gambling /tourism entertainment /international travel dollars?
Nevada has very little manufacturing. Why arent corporations, and other businesses flocking to Indiana to incorporate, and to do business?
Our biggest tourism visits are the casinos, and the Indy 500, and brick yard 400; and Maybe the ACD festival.
other than that- bupkes. zero- zilch.
heck- all the bars are closing. boarded up factories everywhere. vacant store fronts.
They are cooking the books, and all they know how to do is raise taxes- anyway possible. we're taxing, and spending ourselves rich. For al that we have so many bright, logical, erudite persons living in the local region- they sure aare stupid when it comes to thinking outside the bun..
btw- walmart, and mcdonalds are hiring. and about a hundred truck driving companies- no family allowed to ride along. Real Estate agents are going broke. but we have about 100 liquor stores/retail outlets.
boy- If Kelty is Mayor, I hope the Pro-Lifer Kool-aid drinkers can pray us all for a miracle, and create a little prosperity here. FTW will never be Tehran, Mecca, or Salt Lake city( Allah be praised); but if the GOP doesnt do something quick, we will all be on the bread line. we're close already. no Giggle here!

Anonymous said...

They will always be dubious to the legislators because property taxes are their "cash cow" which they can exploit at any given moment. To all the legislators I say, "The jig is up" we know what you do.
Stay tuned for the lawsuit challenge as this seems to be the only way to get them to take us serious. No more property taxes.
In addition, They keep abatements because they are good for development, jobs, investment etc. What would total elimination for property taxes do for all the citizens and business in Indiana? It would be a boon.

Anonymous said...

Gary, you usually do your homework better than you did on this one.

Corporate income taxes in fiscal year 2007 (ending June 30) were $987 million; and Indiana's corporate income tax rate of 8.5% is one of the highest in the country.

Gaming taxes raised $625 million.

The net property tax collected (the amount paid by taxpayers) was just over $6.1 billion.

Individual income taxes in FY 2007 raised $4.6 billion; sales taxes raised $5.4 billion. It's pretty easy to do the math -- if you want to replace the property tax revenue, and come up with an extra $6.1 billion, you raise either the income tax or the sales tax a commensurate amount, or some combination. That's what the LSA report said (I actually read it). The folks at LSA weren't tasked with coming up with all kinds of alternative taxes for this meeting, but if they would have, here are some of the numbers:

Corporate income tax rate of 8.5% raises $1 billion; double that rate, and you'd theoretically get another billion dollars. You're still $5 billion short, and you will have driven all companies out of the state.

Local option income taxes currently raise a little over $1 billion (that's CAGIT, COIT, etc.). An extra 1% hike would raise a little over $1 billion. Still short.

The real problem with implementing all of these plans -- and clearly some new system needs to be put in place -- is that the tax base is stagnant, whether it's sales or income tax. There's been essentially little year over year growth for the past 10 years; so unless you grow the income base, through higher wages, we're left with the unappealing option of trying to tax our way out of the crisis. Bad option.

So don't throw LSA under the bus and give any aid and comfort to Eric "Prince of F**cking Darkness" Miller.

Gary R. Welsh said...

I don't think I have it wrong, anonymous. I specifically recall a recent news report how gaming revenues had for the first time in Indiana's history exceeded corporate income tax revenues. Hell, the Lottery alone generates over $800 million in annual sales, which is the same as a tax on the people who play it.

Anonymous said...

Gary, Gary, Gary . . . you read it in the newspaper so it must be true? Come on, you spent enough time at the statehouse to know how to read a revenue report:


Go to the June 2007 revenue report, because that will be for the end of the fiscal year. Those are the facts, no matter what you might have read in the media.

And as for the Lottery, you certainly know better than to confuse "sales" with profits. If sales are the same thing as a tax on the people, then what do you call the winnings paid out to the people? Rebates? Refunds? By the way, the Lottery generated less than $200 million in "profits" for the state last year, not $800 million.

Anonymous said...

If you include the $500 million the state will receive from the two horse race tracks for their slot machines franchises, the gaming revenues this fiscal year easily surpass corporate income tax revenues.