Indiana’s GOP Governor Pushes Regressive Property Tax Cap Amendment

Gov. Mitch Daniels (R-IN)

On Election Day, voters in Indiana will cast their ballots for or against enshrining a property tax cap in their state constitution. The cap — which would hold property tax increases to one percent for residential homes, two percent for rental properties and farms, and three percent for businesses — is already being implemented by the legislature, but the amendment would make it much harder to alter the cap down the road.

As the Wall Street Journal reported today, the amendment is receiving the enthusiastic support of Indiana’s governor, Mitch Daniels (R):

Gov. Mitch Daniels, a Republican considered a potential presidential candidate in 2012, has been campaigning in favor of the amendment. Otherwise, he said in an interview, it will be too tempting for lawmakers to raise tax rates. “Human nature and the bureaucratic instinct for self-preservation very rarely reform, absent some pressure to do so,” Mr. Daniels said.

Daniels has been relatively reasonable when it comes to taxation recently, acknowledging in an interview with Newsweek that tax increases may have to be part of the nation’s budget solutions (which they do). But back in his home state, he is supporting a regressive tax cap that is going to do a lot for wealthy homeowners, but not much for anyone else.

The amendment is being sold as one that will benefit all Indiana residents. But as the Indiana Institute for Working Families pointed out, that’s not true:

Indiana homeowners benefit from a variety of generous property tax breaks that disqualify many Hoosiers from being eligible for the tax caps, including a $45,000 homestead deduction and 35% deduction on home values up to $645,000. Those fortunate Hoosiers with homes worth more than $645,000 also receive an additional 25% deduction on the remaining value of their home. These deductions dramatically reduce the property taxes paid by most Hoosiers, and do so in a way that makes the most expensive homes more likely to be eligible for the caps. For example, after factoring in the benefit of the homestead deductions and applying a fairly typical 2% tax rate, a home valued at $125,200 would receive no benefit from the caps, while a home worth $1 million would receive over $3,000 in benefits!

Plus, as Citizens for Tax Justice pointed out, “since some of the cost of these recent changes to the property tax was offset by a regressive sales tax increase, renters and lower-income homeowners can expect to pay more in taxes overall.”

In addition to bestowing an unwarranted tax break on the wealthy, the caps will force already cash-strapped municipalities to make further cuts. For instance, “mayors and city-council members across the state also have blamed the caps for forcing them to cut library hours and bus routes, and to lay off police officers and firefighters.” A report from Indiana’s nonpartisan Legislative Services Agency said “cities and towns lost almost 10% of their potential total tax levies this year because of the caps.”