Scott Tibbs
Hoosier Review
May 17, 2003
Back to opinion page.
Property owners in Monroe County are paying their taxes, and many of them are not happy about it. The court-mandated reassessment system resulted in a shift to a market-value system that is wreaking havoc on some local residents. Older downtown neighborhoods are being hit especially hard. Some homeowners are seeing their property tax bills double, and more. Under the old assessment system, older homes were assessed at significantly below market value, so the new assessment is hurting those residents.
Rental properties are seeing a significant property tax hike as well. Downtown rental properties have a high market value because of the student population and the rents they can command. A house downtown can command a much higher asking price for prospective renters than a much better property on the outskirts of town because of close proximity to the IU campus and the downtown. In addition, rental properties do not get the "homestead deduction" for people who live in the homes they own. Owners of an older, downtown rental property are getting soaked, and IU students will likely see significant increases in their rent when they sign leases for the 2004-2005 season.
It appears that the attempt to "fix" Indiana's unconstitutional property tax system has created problems as well as solving them. Which leads one to ask the question: can the property tax system be "fixed", or is it beyond repair?
The very concept of the property tax is one that should unnerve people who believe in individual liberty. The property tax system basically negates the concept of private property. Even someone who has bought a home and paid off the mortgage thirty years ago is at risk of losing his home if he fails to pay his property taxes. For all intents and purposes, paying property taxes is paying rent to the government. Just as with a private landlord, if you do not pay your rent, you lose your home.
Many conservatives speak out against regulations imposed by local government that restrict private property rights, such as the city's temporary sign ordinance or ban on smoking in "public places". Should not at least as much energy be spent trying to convince state legislators to abolish the property tax? Those who advocate against limitations on the ability to use one's property yet support a tax system that negates the concept of private property "strain at a gnat, and swallow a camel."
The way the revenue for the property tax is decided in Indiana shows that the system's priorities are out of balance. Revenue is based on a property tax levy, the total amount of money a unit of government is allowed to collect. Local governments can raise the levy up to a fixed percentage each year. Once the levy is established, the tax rate to bring in that levy is calculated based on the assessed evaluation of all taxable property in each taxing unit in the county. (For example, the part of Perry Township that is within Bloomington city limits and the part of Perry Township that is not within city limits are separate taxing units.)
The property tax system provides a stable revenue stream for local government, but is this necessarily a good thing? In an economic downturn, the state and federal governments both face revenues that are below expectations while property tax revenue for local government is stable. But while residents are forced to make do with less, why should local government have a guaranteed revenue stream? Is it fair to expect homeowners and business owners to continue to pay the same amount in taxes while facing reduced income? Should not local government's main source of revenue fluctuate with the taxpayers' ability to pay? Stability of revenue may make it easier for people writing the budgets, but it is not fair to the people paying the taxes. While taxpayers must make do in difficult economic times, local government should not be placing the same or increased tax burdens upon them.
Not only does the property tax not fluctuate with taxpayers' economic fortunes, the system itself makes no allowances of the ability to pay, just the tax rate multiplied by the assessed evaluation of the property being taxed. An income tax is based on a percentage of income earned, while a sales tax is based on a percentage of goods consumed. The property tax is a fixed amount of money that must be paid regardless. Did you lose your job? Did you take a cut in hours, get laid off for part of the year, or receive a pay cut? Too bad: you still have to write that check. If you can't, start looking for somewhere else to live.
At one time, property ownership was an indication of wealth. That is not the case today. Many senior citizens who have paid off their home decades ago may be living on fixed incomes, which are barely enough to pay for food, medicine and other necessities. Why should they be forced out of their homes because they cannot pay a burdensome property tax bill? When combined with reassessment, the disproportionate (and regressive) burden the property tax system places on senior citizens living on fixed incomes is too great. Meanwhile, a wealthy young person may pay significantly lower property taxes if he owns a smaller home or a condominium. Many people defend the "progressive" income tax system, but when the property tax places a burden on the poor above what is paid by some wealthy people, not nearly enough people speak out.
In Monroe County, the problems with the property tax are further compounded by the fact that we have a large amount of property worth quite a bit of money that, if it were subject to the property tax, could generate a lot of revenue for local government and reduce the tax rate for everyone else. In other words, Indiana University is not subject to property taxes. Is this fair? Moving to a more broad based tax system would have the University paying more of its share for the operations of local government.
Some would say that the property tax system is here to stay, and opponents of it are wasting their time in advocating against it. But with the system as flawed and pernicious as the property tax system, it is a disservice to Hoosier politics to surrender to the existence of a tax system that must be replaced. Advocates of private property rights, individual liberty, and a fair and reasonable tax system should let their legislators know that attempts to "fix" the system are not what we want. Instead, we should tell our legislators that we will settle for nothing less than the abolition of Indiana's property tax system, and will cast our votes based on that desire.