This misdirected “generosity” is in response to the squealing by some homeowners in Indiana upset by our property taxes. The “benefits” would be spread across the nation and compensating higher taxes would also be borne by U.S. taxpayers everywhere.

This proposal would reduce the taxable income for those who take the standard deduction on their federal tax return. Those who itemize their deductions already get this opportunity. But why should the national government intervene in the process by which states and their communities determine their tax policies? Congressman Hill says, “When I tell them (his constituents) that that’s a state legislature’s responsibility and the governor’s responsibility, they still want me to do something about it.”

And so the good representative comes up with a proposal that is inappropriate to satisfy a transitory matter he knows is not his responsibility. Four other Indiana congressmen (Burton, Ellsworth, Donnelly, and Pence) have endorsed this folly.

Federal tax policy should concentrate on national issues. It is not a useful tool to correct problems within the fifty states. There are too many variations of state and local policies for the federal government to involve itself in an appropriate manner.

Existing federal “relief” for local sales or property taxes tend to favor states with higher tax rates without any consideration of the ability of citizens in those states to afford those rates. In fact, such federal intervention is contrary to the idea that states should have as much control over their own affairs as possible within a federal system.

This is not a plea for state’s rights. Rather, it a commentary on the inability of weak legislators to understand the necessities of policy formation. America has too many serious issues to bother with the property tax blues of some disgruntled citizens.

Long ago I learned from a wise administrator at Indiana University what these lawmakers know too well: If someone seems to need help, you should seem to give him help. This Bayh-Hill proposal is illusory and wrong. No doubt it will die in committee, after the authors get their headlines.

Or so it seems to me.

For example, there is excitement in Johnson County. Nestlé, the giant Swiss food conglomerate has announced its intention to open a water bottling plant. Should the people of Johnson County and Indiana be joyous?

Nestlé intends to bottle a million gallons of water a day at its new facility in Franklin. That will mean hundreds of thousands of people outside Johnson County absorbing the resources of Johnson County and all Indiana communities downstream from Franklin.

One of the great achievements of American society is that we have plentiful safe water. We have invested billions of dollars in water supply systems. Yet American consumers have been lured by advertising into thinking that bottled water is better water.

The average American drinks more than twelve gallons of bottled water each year and more than fifty percent of Americans report drinking bottled water. It is estimated that we spend eight billion dollars a year on bottled water.

It is truly amazing to be in line at the grocery and to see how much liquid is stacked in the baskets of your neighbors. Not only is there bottled water, but there is beer, wine, soft drinks, energy drinks, juice, milk and other substitutes for water. Some are healthy; some are just carbonated or inebriating.

Every one of those items has heavy production costs, including transportation of inputs and of the final product to your store. Then those goods in their containers have to be transported home, stored, and finally sent off for trash or recycling. Water is there, everyday, at your tap, at a much lower cost, ready to be consumed in a reusable glass.

Many people say that their tap water is unpleasant. There are remedies. First, you can work with your water supplier and your neighbors to improve the situation. It is not impossible. It does require being willing to spend some money, but that cost can be much less than all those other drinks.

Or you can do we have. Water at our home comes from a well on our property. It has an awful taste and a dreadful smell of sulfur. However, we have installed filtering devices and now find the water acceptable. No guests have ever refused to come back because of the water.

If we want to change our society, we need to consider the environmental aspects of our consumption. A good place to start is bottled water. Certainly Nestlé should not be given any tax incentives to locate in Johnson County. No firm that produces unnecessary, undesirable products or services should be subsidized by government.

Who is to decide what is necessary and undesirable? It just so happens that I’m available anytime there is such a question and my fees are quite reasonable.

Everyone seems to complain about his/her property tax bill. But how many have examined these bills in their simple raw terms?

As an example, let’s take apart the property tax bill on our Marion County home. You can do the same for your mansion.

Our total bill rose by $2,929 (56%) from $5,242 payable in 2006 to $8,171 payable in 2007.

There were several factors contributing to this increase. Note: only the arithmetic factors are being considered, not the merits of increased government spending or the precision of the reassessed value of the property. We will leave everything on our 2006 bill as it was, changing only one factor at a time. This does not mean we approve or disapprove local or state government actions that raised or lowered various rates.

These factors include:

1. The assessed value of the building on our land rose 32% from $340,300 to $450,600. There was no change in the value of our land which is strange because road improvements and commercial development have made our area more attractive for residential uses.

The change in the assessed value of our home raised our property tax bill by $1,640.

1. We now return our assessed value at its previous level ($340,300). Then we ask: “What was the value to me of the state legislature increasing the homestead credit from $35,000 to $45,000?”

The higher homestead exemption reduced our property tax bill by $149.

1. The city, county, township, school and library districts all levy taxes on our property. The sum of their separate tax rates is $2.8177 per one hundred dollars of assessed value. Last year it was $2.6302, an increase of just under nineteen cents per hundred or seven percent.

Again, leaving everything else as is, the increase in the total tax rate by all governments raised our bill by $370.

1. Next, the legislature reduced the State Property Tax Replacement Credit (PTRC). The amount of that reduction varies from one taxing district to another depending on the amount of debt the various governmental units have as a result of capital spending. For our district the credit went from 27.4274% to 23.0913% of the initial or gross tax computation (Net assessed value: $452,800 times $2.8177 per $100).

The decrease in the state property tax replacement credit increased our tax bill by $255

1. As “gift” to homeowners, the General Assembly provides a homestead credit, which is a percent of the amount owed after the PTRC has been applied. This year the value of the “gift” was reduced from 17.2208% to 11.0474%.

For our property the decrease in the homestead credit increased our taxes by $416.

1. Not to be out-done, the Indianapolis-Marion County City-County Council provides homeowners with a county homestead credit. Last year it was equal to 4.9202% of the amount owed after the PTRC, but reduced this year to 4.7929%.

Thus, the decrease in the county homestead credit increased our tax bill by $9.

1. All these various calculations have been presented separately, but they are actually inter-related. For example, when the homestead exemption is increased, the gross tax bill is decreased. If the homestead credit is unchanged, the tax bill will decline. But when the homestead credit is also reduced, the net tax change depends on whether the new (lower) credit rate wipes out the decline in the bill resulting from the increase in the homestead credit. (And we wonder why people who work with tax issues are a bit squirrelly?)

This multi-factor effect for 2007 increased our tax bill by $388

So what do we have? Our property tax bill was

Raised by

Reassessment $1,640

Local government

Tax rates 370

Homestead credit 9

State legislative reduction in credits

PTRC 255

Homestead 416

Multi-factor inter-action 388

Reduced by

Increased state homestead exemption $149

Net increase in our property tax bill $2,929

Almost 56% of the increase in our property tax bill was due to reassessment. This is the result of the ongoing effort of the state and its counties to achieve a market value for property after years of inappropriate assessments. There is still much work to be done. Today’s taxpayers are paying for the laxity and inertia of the past.

It is not surprising that taxpayers are squealing. The actions of the General Assembly work in opposite directions, with the net effect in our case of being nearly 18% of the increase. Local government actions represented 13% of the increase for this property. The interaction of all these factors accounted for another 13% of the increase.

Do the members of the General Assembly and local governments understand how property tax bills work? Does the public have any idea of the complexity that has been built into our property tax system?

How about some simplicity? My nominal tax rate, as noted above, is $2.8177. The effective rate (total due divided by assessed value) is $1.6415, an increase of 21% from last year. Why not dispense with the exemptions and credits? Why not just a simple tax rate? There are reasons for and against such a policy, but who knows them well enough to vote on the issue, particularly in a hurried “special” session?

Or so it seems to me.

What is local spending? If the costs of juvenile courts, foster care, and detention were not paid by local taxes but by the state, property taxes could be lowered. Of course sales, income and other states taxes or fees would have to rise, but who cares as long as the “cruel, unfair, burdensome” property tax could be reduced.

If the state paid for welfare or public assistance, then local property taxes could be reduced. Of course it would mean raising those state revenue sources, but property taxes could be reduced.

Over the years, the state has increased its share of spending on public education. Is public education a state or a local function? Or is that question just a matter of convenience for those who are philosophically void?

Many politicians are now foaming at the mouth to eliminate units of local government. “Let’s combine school corporations, destroy the townships, merge fire and police departments.” Remember, these ideas were thoughtfully proposed in the past and politicians rejected them. Now, there is a flurry, a frenzy to cut, slash, and burn without cautious study or reflection.

Misdirection often is the chief game of the politician. Let us not forget that lower property taxes will mean higher taxes on something else. If we cut government spending, what do we sacrifice? The presumption is that government is fat, inefficient, and ineffective, while spending recklessly and unnecessarily. Visit your local government and see how plush the accommodations are. Spend some time with government workers and you will see how vital their work is to our communities. Yes, there are sluggards in some agencies, but they are to be replaced; their functions should not be forsaken.

Let’s ask the uncomfortable question: What is wrong with property taxes?

1. The property tax is paid only twice a year. If it were less visible (like the sales and income taxes) there would be fewer complaints.
2. Some people think that the property taxes they pay are too high relative to the assessed values of their homes. OK, what would be “the right” ratio of taxes to value – two percent? four percent? Pick a number from one to ten?
3. People confuse the property tax with the income tax. “Poor people pay too high a percentage of their income on property taxes compared to rich people.” Perhaps that is true, but do we know that it is true? Do we have records that match the property taxes paid on a residence with the income of the residents? It might sound simplistic, but the property tax is a tax on property, just as the gasoline sales tax is a tax on gasoline sales. We do not ask the income of the person filling his/her tank. Why introduce income into a discussion of property taxes?
4. Some will tell you that the property tax discourages people from buying homes, the best form of savings in our society. I say that low property taxes encourage urban sprawl and people living in house of excessive size plopped on lawns too large for them to maintain. Low property taxes are anti-environmental sanity.

The Governor and Mayor Peterson are calling for a special session of the General Assembly to get them out of uncomfortable political positions. Perhaps they should spend some time trying to think through a comprehensive approach to taxation as part of a good government program. That will take more than a few days of frenetic deal-making, but since both are intelligent men, the rewards to the future of Indiana might be extraordinary.

Or so it seems to me.