The Indiana General Assembly is generous when giving away the revenues of local govern-ments. The latest scheme, advocated by the politicians wielding power at the state level, is to give a nice tax break to businesses at the expense of local governments. They propose to get rid of the property tax on business equipment.
Such property, called “personal,” is used by firms to make products and provide services. Long ago, households too paid the “personal” property tax. Today, a computer system used in a business is subject to the tax; a computer used in a household to surf the web and send pictures to Granny is exempt.
There were good reasons for getting rid of the tax on household goods. It was widely ignored, and those who did not ignore it, most frequently lied about what they owned and how much it was worth.
There may be good reasons for getting rid of the tax on business machinery. Such a tax is believed to discourage businesses from investing in new equipment. No one seems to have evidence that this is true, but it is believed and that is good enough for the governor and the legislature.
We have had wonderful announcements from new and existing Indiana firms about how much they are going to invest in new equipment around the state. Not one of those announcements said firms would have invested more without the personal property tax.
Unfortunately, no one seems to have a clear idea of how cities, towns, counties, schools, libraries and other local entities will replace the lost property tax. But then that has never been a concern of those who press for lower property taxes.
Indiana has spent the last 40 years in a war on the property tax and local democracy. We have insisted on controlling local spending, denying cities and towns self-determination, capping property taxes, and eliminating various forms of property from taxation.
When the inventory tax was eliminated a few years back, who benefited? Auto dealers were the number one type of business paying that tax. Did auto prices fall? Did auto salespeople get higher commissions? I don’t know and I don’t know anyone who does know. But local governments got less money for maintaining public services or local income taxes were raised for individuals.
If we eliminate the personal property tax, let’s imagine that there is more investment by business in Indiana. Who will benefit? Will Hoosier workers be paid more because they are more productive? Or will fewer Hoosier workers be hired? Perhaps the benefits will show up as greater benefits for top executives.
I don’t know if studies in other states have answered those questions. Perhaps the legislature could look into the issue. They could then rely less on the theoretical arguments used by the advocates of still more tax cuts for selected industries.
Morton J. Marcus is an economist, writer and speaker formerly with the Kelley School of Business at Indiana University. He can be reached at firstname.lastname@example.org.