Mangan: If It's Broken, Throw It Away

If it's broken, throw it away.

That's the word from Patrick Mangan in today's South Bend Tribune. He's referring to Indiana's property tax system, which he believes is the reason why "many hard-working families [have] lost a generation or more of wealth-building capital in homes and investment properties."

Here's the logic, if you can call it that, in a nutshell:

1) We think it's important to "help working families progress to the middle class." (I'm with him so far).

2) There are two "key benchmarks" for achieving this goal: education and homeownership. (Still reasonably with him.)

3) Indiana property taxes are making people lose their homes. (totally plausible, given everything else that's already going on in the state's economy)

4) Therefore, we should repeal all Indiana property taxes paid by individuals at all income levels, as well as the property taxes paid by businesses big and small.

This is, of course, the same recipe anti-tax federal lawmakers used six years ago to engineer the (temporary) repeal of the federal estate tax. If there's anything demonstrably wrong with a tax, the only true reform is repealing the whole thing.

The question Mangan has to answer, and simply doesn't, is this: if the problem is that the property tax makes it harder for lower-income families to move up the ladder by becoming homeowners, why is your solution to offer a tax break for every homeowner in the state? Why not take a hard look at the hodgepodge of property tax breaks the state has enacted over the past thirty five years and try to come up with a cheaper, more rational, better targeted approach to property tax relief for low- and middle-income homeowners and renters?

This is obviously harder, in the short run, than just pulling the plug and repealing the property tax entirely. But it's also a much smarter move.

Mangan argues that we "We need a tax system with fewer moving parts." And there's some truth to this. No one, starting from scratch, would design a property tax system the way Indiana has, with an array of different tax credits for different groups. Homeowners get about five different tax breaks en route to determining their final bill. But again, the grown-up way of dealing with such a problem is a word starting with "R" that isn't "repeal"-- it's reform.

A very sensible approach for rationalizing Indiana's property tax mess is repealing the array of homestead credits and exemptions that currently exists, and replacing the whole mess with a simpler, fairer "circuit breaker" credit that limits the percentage of income that low- and middle-income homeowners and renters must pay in property tax.

If the problem is that low-income families are losing their homes, the circuit breaker can fix it.

It's not obvious that repealing the entire property tax will have the same effect.