A taxing situation
Estimated top Allen County recipients of 2013 personal property taxes (in millions of dollars):
City of Fort Wayne: $14.8
Fort Wayne Community Schools: $10.94
Allen County: $10.04
Allen County Public Library: $3.84
Southwest Allen County Schools: $3.59
East Allen County Schools: $2.8
Northwest Allen County Schools: $1.02
TOTAL COUNTY: $51.58
Source: Allen County Auditor's office
Universities and corporations have issued statements. Chambers of Commerce have weighed in. Tom Henry and other mayors have made their positions known. The media are positively obsessed with it.
Everybody, it seems, is talking about gay marriage and whether the coming session of the General Assembly should support a constitutional amendment banning it in Indiana – a sometimes-heated debate that has all but drowned out a proposal that could cost Allen County governments more than $51 million a year, including nearly $15 million in Fort Wayne alone.
Supposedly intended to make Indiana more attractive to employers and corporate taxes more “fair,” some legislators – including House Speaker Brian Bosma – support the elimination or reduction of the tax on business equipment and other items, also known as personal property. Other Midwestern states have eliminated the tax already, the say, and following suit in Indiana would save companies about $1 billion per year.
But what's good for the corporate goose could cook the local governments that currently rely upon that money and the taxpayers who no doubt would be asked to make up some or all of the shortfall in ways still to be identified.
The state's five-year-old caps on property taxes have no doubt provided relief to some taxpayers and encouraged thrift among officials. But the caps have also reduced cities' and towns' revenues by a combined $250 million per year, causing some to eliminate services, increase fees or seek voter approval for tax increases in excess of the caps. But as the conservative Indiana Policy Review noted this week, some have perceived those caps as unfair to business, since they limit taxes to 1 percent of assessed value on homes but 3 percent on businesses. “The result was a $3 billion shift from residential homesteads onto industrial and commercial property,” it concluded.
So perhaps it is not surprising that economic-development types and others are supporting elimination of the personal property tax despite Senate President David Long's assertion that “Indiana has the best property tax controls in America.” As Greater Fort Wayne Inc. President Mark Becker put it, “We support a fiscally responsible approach to eliminating the personal property tax that does not place additional burdens on local governments.”
Long, R-Fort Wayne, supports investigating the proposal, but said on a recent episode of my TV show “Fort Report” (episodes of which can be found at www.news-sentinel.com) that “We can't cut local officials' throats after passing the caps. We need to err on the side of not doing more harm than good.”
What they're saying, essentially, is this: If the personal property tax is reduced or eliminated, the lost dollars will have to be replaced somehow.
But if business taxes are added or increased, it would have all been for nothing.
And if sales, income or property taxes are increased on everybody else, that would offset the stated intent of the caps – not to mention the potential negative impact on consumers' ability to buy things and create job.
Allen County Council President Darren Vogt said it was a mistake to establish a higher cap for businesses than for homeowners and suspects most governments can probably find additional savings – but not enough to offset the $10 million county government receives from the personal property tax every year. “What I hope (the state) won't do is to tell local officials, 'you can increase taxes if you want to (to make up the difference).' That would put us in the hot seat (over something the state did).”
And as Vogt mentioned, even a source of replacement revenue might not solve all the problems caused by eliminating the tax. Many local governments have established special districts in which improvements are funded through taxes collected within that district. If the personal property tax goes away, money to pay the debt may not be readily available.
As a supporter of both business and small government, I'm all for efficiency and low taxes. But I'm also for government that does its job well. Unless the Legislature raise $1 billion a year from other sources in a way that does not hurt people or the economy – and I can't imagine what that might be – this is one idea that probably sounds better in theory than in reality.
One of officials' favorite economic development tools, after all, is to offer temporary reductions in personal property taxes in exchange for new investment and jobs. Just recently, in fact, County Council offered to waive all taxes on $110 million in new equipment for 10 years at General Motors' truck plan. If the tax goes away, so does politicians' ability to offer reductions – meaning they would be pressured to find yet another way to “sweeten the pot.”
Maybe we should just focus on gay marriage, after all.