Ball State economist says property tax cut proposals would hurt young families

Ball state economist Michael Hicks claimed in a column published by the Indianapolis Star on Monday that property tax cut proposals floated during this election cycle would hurt young families. The Indiana Commons asked, is he right? (Photo Credit: Darron Cummings/Associated Press)

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Micah Beckwith’s proposal

One proposal, which came from Micah Beckwith, the GOP candidate for lieutenant governor, suggested that property tax should be eliminated for Hoosiers 65 and older as well as military veterans.

Hicks, however, said that this would unfairly shift the tax burden onto young families. His reasoning lies in how the property taxes are allotted.

“Indiana’s property taxes are budget-based. So, if the legislature excludes a particularly meritorious set of taxpayers— such as economics professors who are also retired soldiers — someone else pays that tax or services get cut,” said Hicks. “So, if this tax proposal becomes law, my property taxes will drop by 100%, but my neighbors will all pay more. Probably a lot more.”

Property taxes are a type of ad valorem taxes, which is distributed proportionally to several different units of local governments.

For the state, the average revenue distribution per property tax dollar is the following:

  • County: $0.19
  • Township: $0.03
  • City/Town: $0.24
  • School: $0.42
  • Library: $0.04
  • Special Unit: $0.07

The tax rate itself is directly based on budgets submitted by local governments to the Department of Local Government Finance. Taxation and spending, then, are directly tied, meaning that decreasing the tax base at a state level without simultaneously decreasing spending at a local level means that other taxpayers may have to foot the bill.

“Statewide, roughly 1 in 5 households would be excluded from property taxes in this scenario,” said Hicks. “Moreover, the value of housing stock owned by older Hoosiers is higher than that of younger families. So, this proposal could shift a third of property taxes to younger, poorer residents.”

Indiana, however, sets tax caps at 1 percent of the gross assessed value for homestead properties, 2 percent for other residential and agricultural land and 3 percent for other real and personal property, meaning that such a tax cut plan may make it difficult to fund local governments.

It is also unclear how this proposal would impact referendum property tax levies, which in many cases fund local public school expenditures.

Hicks claimed that such a plan would make it difficult to attract more younger residents to the state.

The Indiana Chamber of Commerce found that 40 percent of college graduates left the state within five years in 2022.

Donald Rainwater’s proposal

Donald Rainwater, who is a Libertarian candidate for Indiana governor, also proposed a tax plan, which would cap property tax values at one percent of the purchase price of a piece of property.

Hicks argued against the proposal for similar reasons as Beckwith’s. He pointed out that it was similar to California’s Proposition 13 (1978), which limited property tax at one percent of a property’s purchase price plus two percent or the rate of inflation per year, whichever is lower.

“California tried a version of this more than 40 years ago, and it has clobbered housing options for young people, strangled public services and helped destroy neighborhoods,” Hicks said.

The Indiana Democratic Party also criticized the proposal on X, referring to it as a “California-style system,” albeit they may have mixed up Rainwater’s and Beckwith’s.

While both Beckwith and Rainwater are on gubernatorial tickets, neither would have the statutory authority to enact tax reform if they are elected. The Indiana General Assembly would be ultimately responsible for changing the law, if they decide to pick up one of these proposals or implement a separate one.

Past meetings of the the State and Local Tax Review Task Force can be found here.

The Indiana Commons columnist Eric Reingardt has previously written in favor of a land-value tax, which some suggest could serve as an alternative to other types of taxation, including property taxes.

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One thought on “Ball State economist says property tax cut proposals would hurt young families

  1. Ridiculous. Indiana’s broken property tax system penalizes homebuilders and building improvements but allows absentee landlords and banks to turn a tidy profit at the expense of renters and mortgage payers.

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