May 01, 2007

Indiana's Property Tax Refund

Facing homeowner property tax hikes estimated at close to 25 percent for the upcoming year, Indiana lawmakers have included a temporary property tax refund in the budget bill they passed over the weekend.

As we note here, the refund appears to have been designed by public relations strategists rather than tax policy wonks. Every homeowner will get a check in the mail this fall telling them with a little note telling them what the check is for and who they should thank for it. Republican leaders saw this as a political trick:
House Minority Leader Brian Bosma, R-Indianapolis, called the rebates a "harebrained idea" that "helps politicians and not the taxpayers."
But there are more substantive reasons for thinking that this year's property tax rebate may not be the best way of staving off a property tax revolt. With the property tax, the first thing lawmakers should ask after noting that their constituents are mad as hell about property taxes is "why are they mad?" In Indiana, as in most states, the answer is usually that people see their property tax bills going up even though their ability to pay them has not.

From this perspective, the main thing to know about the budget bill's property tax refund is that it doesn't seem very well tailored toward making people less mad. Getting a rebate check in the mail a couple of months later will be cold comfort for someone on a fixed income who simply can't afford a double-digit property tax increase.

A second reason to be concerned about this approach to doing things is that it basically asserts that everyone needs a property tax cut. As we've noted before, lawmakers have a disturbing tendency to rail about the plight of fixed-income families in drumming up support for property tax cuts-- only to pull a shell game that ends up cutting taxes for even the wealthiest family. This is a concern because the refunds going to the best-off Indianans could have been more productively used to help keep fixed-income seniors from having to sell their homes-- a goal that virtually any lawmaker would sign on to in theory.

A third reason? Upper-income Hoosiers will be sending part of their refund directly to Uncle Sam. The refunds will reduce, dollar for dollar, the amount of itemized deductions for property tax that itemizing Indianans can write off on their federal 1040 next year. So anywhere between 10 and 35 percent of the refund check, depending on your federal tax bracket, will never see the inside of your wallet. This problem could have been avoided of Indiana lawmakers had decided to target property tax relief to fixed-income families (who tend not to itemize their federal income taxes).

3 Comments:

At 4:07 AM, Anonymous Anonymous said...

I am a firmly lower middle class guy. I make 13900 per year, I have been married less than a year and we purchesed our property from a good friend on a land contract. Now i have to borrow money to pay my taxes. Yay republicans, way to keep me in abject poverty!!!

 
At 10:40 PM, Anonymous Anonymous said...

Just wanted to leave a comment and let you know you've discussed low-income and
wealthy in your post, but you've forgotten the impact to the vast middle class.
And specifically upper-middle, which you might tend to throw in with
upper-income. Because our taxes are SO high, your third reason logic of
property taxes being itemized on federal taxes does not apply. We're trapped by
the alternative minimum tax. We haven't been able to write off the majority of
our Indiana prop taxes for years now, and this next huge boost will be no
different. Our taxes were going up 40% already this year, and now there's an
additional 25%??? WTFO???? What I really want to know is what the public can
do to get together and protest this problem. Writing to senators and
representatives is useless -- they're the idjits that are causing this problem
in the first place. Are there any citizen organizations that you know of???

 
At 8:15 PM, OpenID thrst5 said...

The way the property tax situation has been handled by Mitch and his admin. is grounds for a class-action suit by the citizens of Indiana against the state of Indiana, and the governor personally as a personal liability suit. The stupid approach of "trending" is the most asinine thing I've eve heard of. Who's the lawyer who wants to make a million or so by heading up this suit? I'll be the first to pay on his retainer.

MJT - LaPorte, IN

 

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