Amend Indiana's Constitution?

Indiana Governor Mitch Daniels’ proposal to codify property tax caps in the Indiana Constitution is well-intended, but fraught with risk. He would be wise to heed the cautions of Sara Arnold in last Sunday’s Indy Star (“Caps Create Winners, Losers). Unintended consequences are often more significant and lasting than those that are intended.

The proposal involves Amending the Constitution to incorporate caps on property taxes at 1% for residential properties, 2% for farms and rental properties, and 3% for all other businesses. Governor Daniels argues as follows:

As important as the size of the reductions was the nature of the reform, which ended completely the use of local property taxes to pay for certain expensive and fast-growing government functions such as child welfare, health care for the indigent and school operating costs. Those and other activities are now the responsibility of state government, meaning that we rely on sales, income and other tax sources and not on taxing property to pay for them. That's a major new protection against local taxes growing again as they have after previous relief efforts.

Also, Gov. Daniels claims that:

…[by] “eliminating the power to shift the burden from one category to another, our bill has meant that local schools and units cannot simply pick a desired spending level and then ratchet tax rates up to generate it. Instead, like every family, business or state government, they will have to live within the means that taxpayers can afford.”

Now who wouldn’t want lower property taxes? It sure sounds innocent enough on the surface.

However, we should be VERY vigilant against the usurpation of local authority by the State. If the State is requiring it, then the State should be funding it. But when we let the State “help” the local authorities, the result can be a loss of discretion that transfers power to a less accountable and less approachable State bureaucracy.

A tax dollar is a tax dollar in terms of what it costs me; it frankly matters not if I pay it in the form of sales tax, income tax, or property tax—it’s a dollar I don’t have that the Government now does.

But tax dollars are NOT the same in terms of value of what they buy. A local dollar goes much, much farther than a State dollar, just as a State dollar goes much farther than a Federal dollar. The smaller bureaucracy and vastly fewer number of times that the dollar changes hands mean my local dollar goes farther.

So while we all would like to have lower property tax rates, let’s not take our eye off the ball. Lower property tax rates don’t automatically mean we pay less for Government. In fact, if we end up having to go back to the State to get back more of our local money taken in other taxes , it may mean we end up spending more for the same level of service.