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INDIANA V. IOWA: THE PROPERTY TAX BOWL

July 23, 2007

Indiana is having a debate on property taxes that sounds a lot like what's happening in Iowa, according to a report at Tax Policy Blog:

Property taxes are rising in Indiana, with taxpayers in some counties (including Marion County, which includes Indianapolis) seeing their bill increase by more than 25 percent. This is naturally leading to calls for state lawmakers to ease the property tax burden. During the July 4th week, about 400 people showed up at the home of Governor Daniels to urge him to "do something."

Last week, the Governor released a statement concerning the property tax debate in the Hoosier State. After acknowledging that he is dismayed at the rising property tax burden, he says:

"Let's start with the basics: property taxes pay for local spending and local borrowing. They are collected by and for local government, schools and libraries. When, as in Marion County, local spending goes up 10 percent per year, taxes are going up with it. Local assessment that claims Marion County home values grew 19 percent faster than commercial property is another obvious factor in Indianapolis' acute problem.

Although the cause of the problem is local, state government has tried repeatedly over 35 years to relieve the property tax burden on Hoosier citizens. Through sales and income taxes, the state already provides more than $2 billion annually -- a quarter of total property taxes -- to subsidize local government spending. The recent legislature dedicated another half billion dollars to this purpose, and also gave localities major new flexibilities to reduce property taxes and replace them with income taxes. This new power to reduce property taxes has not yet been used in Marion or any other county."

This is a refreshing take on the property tax debate and should serve as a model for how lawmakers in other states respond to rising local property taxes. Too often, state lawmakers choose to swap higher state taxes for lower local property taxes, a non-solution that takes money from one pocket and puts it into another.

In Indiana, as in Iowa, the first step to controlling property taxes is to control spending. As Iowa has probably more government agencies per capita than any other state, there are plenty of places to look for economies. People sure don't seem excited about raising sales taxes here instead.

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