With new mayors and council members in many of our cities, it’s time to drag out some of previous suggestions for fiscal reforms. Of course lowly mayors and councils can do nothing that is not approved by the almighty General Assembly. After all, we know that all the best brains filter up to the legislature with only the sludge left behind.

First, it’s time to reconsider property tax abatement. But we can’t understand property taxes and their abatement if we don’t understand assessment practices. And, it is not clear what is happening these days with property assessment.

For example, does a property’s assessed value change automatically when it is sold or does it change only in line with the trend for average price changes in its neighborhood? How often will there be reassessments that are not based on trending?

If you upgrade the interior of your home will your assessment go up? Or will the assessment remain the same and rise only if neighboring properties sell for more than they had previously?

I’ve looked for the answers on the Web site of the Department of Local Government Finance, but I can’t find them. Maybe they aren’t there.

My recommendation is that ALL real property improvements receive property tax abatements. As a state we want to encourage all property owners (residential, commercial, industrial, agricultural) to make permanent improvements. There should be no need for case-by-case political approval. Permanent property improvements of all types should receive the same abatements.

Second, some portion of every sales tax dollar should be returned to the taxing district in which that dollar was raised to support local services.  This should not be a mandated replacement of property taxes, but a new source of funding used at the discretion of local officials.

Don’t tell me we don’t know where the taxes are raised. That has been the excuse of the Department of Revenue for more than 30 years. With today’s technology, it is either politics or sloth that keeps everyone from knowing how much in sales taxes is raised in every county down to every city block if necessary.  

Third, let’s stop unfair subsidies to seniors. Why should a person get a $1,000 exemption on his/her income tax just because s/he is over 65? Why is a rich person of age 66 given a benefit denied to a poor person age 64? Income taxes should be based on income, not age. As Dr. Seuss might have said, “a person is a person, no matter how old.”

Fourth, get rid of preferential treatment for homeowners. Property taxes are levied on land, buildings and other improvements. Whether that site and structure are used as a house or a bakery is of no consequence for property tax policy. 

Fifth, let’s give larger individual exemptions to make our income tax more progressive. Right now we provide a $1,000 exemption per person (plus an added $1,500 for children). Raise that to $5,000 per person so that a family of four with an adjusted gross income of $20,000 would pay no Indiana income tax. 

Sixth, stop blind budgeting. Let’s have localities budget on the basis of actual revenues received rather than on the thin air of revenue expectations. Today your city or town makes up a budget and submits it to DLGF long before revenues are known. Then DLGF certifies a property tax rate for each locality. Later the Office of Management and Budget figures out how much local income tax is returned to your county. 

By this time, schools, counties, cities, towns, libraries and other local entities are already spending the money they have yet to see. Wouldn’t it make more sense to have these governmental units spending from money they actually know they have? 

Seventh, local revenue sharing is very important. If a new factory moves into one school corporation, how are the property taxes to be distributed among the surrounding schools where the workers may reside? It’s time to start sharing the benefits of economic development. 

There are many other reforms to consider, but I have run out of space and you might have run out of time.

Morton J. Marcus is an economist, writer and speaker formerly with the Kelley School of Business at Indiana University. He can be reached at mortonjmarcus@yahoo.com

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