ISTA Gives Thumbs Down to Governor's Tax Plan

Representatives of the Indiana State Teachers Association have announced the ISTA's opposition to a plan, announced last month by Governor Mitch Daniels, that would eliminate property taxes as a source of school funding revenue, and would have the state pick up the schools' general fund tab entirely (they already pay 95% of these costs) using a sales tax hike to pay for it.

ISTA representative Dan Clark offered two reasons for this position.
1) State funding of schools would mean that in times of fiscal shortfalls, schoolchildren would have to compete for scarce state budget dollars with other funding priorities.
2) The property tax is actually pretty useful in its dependability. Because it's less subject to economic fluctuations than the sales tax, you can always depend on it to bring in enough money to pay for needed services, even during the hardest times.

Both points are legit. Indianans need look no further than Wisconsin to see the dangers of states deciding they can afford to pay for an adequate education themselves. Wisconsin has had perpetual trouble living up to their guarantees they've made for assuming the lion's share of school funding costs. And the level of state funding has been a political football even in the good times.

And it's absolutely true that property taxes are a more stable funding source than sales taxes. That is, of course, one of the things that makes people mad about property taxes-- if you lose your job, your property tax bill will still be in the mail next year-- but the glass-half-full way of looking at it is that this is a tax base that isn't going to disappear anytime soon.

There are other reasons to be concerned about the Daniels plan. One could ask why the state wouldn't harness progressive personal income taxes as a way of bankrolling a state takeover of local school funding. And there are basic question of local autonomy and local control that should give any school-age parent pause.

But Clark and the ISTA are right on the money on this one.

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.