We can’t afford not to.

April 21, 2008

Where's the moneyPeople frequently ask, “If you abolish the property tax, how would you replace the revenue”?

There is no silver bullet that will solve the problem. It would be tough but we could do it if we set it as a goal. We would have to chip away at it, and find several sources of income.

However, unless we have accepted that property tax is unjust, we will never go through the pain it will take to quit using its revenue. In this sense, property tax is like child labor, or slavery. As long as people were in denial about the evil of those institutions they would always say, “We can’t afford it.” The truth was just the opposite. In the long run child labor and slavery were expensive because of the human potential they squandered. We just can not afford a tax system that punishes a big family because it needs four bedrooms, or punishes people for improving their neighborhood, or drives manufacturers to send their jobs to China.

So, if we agree that property tax must go, how would we replace the revenue? One simple solution is to just move to sales and income tax. This has been calculated from our states actual revenue stream and would take a two percent increase in both sales and income tax. You can see the math at this link to the 2/2/2 plan. Critics have said the numbers don’t work, but they have provided no evidence for this assertion.

Doing some other things could lower the higher taxes of the 2/2/2 plan.

  1. We could put a sales tax on the sale of homes. The tax could be rolled into the mortgage and paid off over time at a rate equal to or lower than existing property tax. Once you had it paid off you could finally own your own home.
  2. We could impose a fee per unit for public safety and sanitation. These are services related to the property and there cost would be modest. A fee system would not require the expense and error of the assessment system.
  3. We could broaden rather than raise sales tax. Many services are not taxed in Indiana. Why do we expect every pushcart peddler to collect and remit sales tax but it is too difficult for accountants?

There you have it. Several reasonable ways we would move away from property tax to fairer taxes based on the ability to pay.


April Fools!

March 22, 2008

Today I bring you a guest editorial from Fred McCarthy from Indy Tax Dollars

April Fool
If it happened more frequently, one might wonder whether citizens of Indianapolis and Indiana were being taken for fools intentionally – and successfully.A member of the Capital Improvement Board (CIB) projected that the city would “…make $1.39 million annually from the Colts move.” That guesswork was announced 24 years ago, appearing in the local daily paper on April 1, 1984. We’ll never know whether the date was coincidental or intentional. But the “guesstimate” was certainly a huge – and very expensive – joke on the taxpayers.

The governor has just signed HB1001, alleged to be widespread, permanent property tax relief for all Indiana taxpayers. We found it intriguing that, of some 600 pages of material which include a wide variety of “protections” for the taxpayer, the first phase to take effect will be a 16% increase in the state sales tax. (Don’t want our spenders to worry about funds, do we?) And guess what! The increase in the sales tax becomes effective on April 1, 2008.

We have asked before and we will ask again. If one considers a “cap” to be a permanent, inflexible limit on something, how does one reach that point by calling a percentage of a variable figure a “cap?” Assessments can change every year, and the individual taxpayers who think this legislation will give them permanent relief from property tax increases are living in a dream world. With or without professional assessors – if and when we get them – politicians will play games with assessments.

Our efforts to get a copy off the Internet of Senate Joint Resolution 1 – the constitutional amendment which will place the alleged “caps” in the state constitution – have been unsuccessful so far. Having not seen it, we are curious about the wording of the proposed approach. The publicly stated effort would “cap” residential property (that lived in by the owner?) at 1%, rental and farm property at 2%, and all other – business – at 3% of the assessed value.

We suppose they have covered this, but we do wonder about definitions. If a man owns ten single family residences from which he derives his total income, are those properties “rental” or “business?” Is a ten-story apartment building “rental” or “business” property? If a suburban area homestead contains, as a sideline, a profit-making horse boarding stable while the owner goes downtown to work every day, is that a “business?” Why is a “farm” producing corn and soy beans for sale on the local market not a “business?”

The effect on business generally has disastrous possibilities. There are few “red flags” more significant to a business looking to relocate than the fact that the governmental unit involved can hang a legally sanctioned higher price tag on it than on surrounding properties. And if the residential property owner (read, voter) will have to eye the assessment program carefully, just think what the potential is for game-playing with commercial buildings and industrial plants.

We are seriously concerned that the whole situation might be an intentional scam. The sales tax increase will be in effect and will stand, no matter what. In self defense the business community may find itself paired with the spenders and the likes of the Indiana State Teachers Association (ISTA) in an effort to defeat or to change the proposed constitutional amendment. (An amendment must pass, in identical form, two separately elected legislatures.) The ISTA already has pretty effectively neutered the referendum provisions originally offered, and it is against “caps” because it wants no limits, no how, no way, on revenues to which it is “entitled.”

We fear that HB1001 could turn out to be the most successful – and most damaging – April Fool trick ever pulled off in the state of Indiana.

Why property tax should be abolished, Part II

March 18, 2008

Property Tax Delay

Here are some practical, rather than philosophical reasons why property tax should be abolished.

Property tax forces people from their homes, in some cases tragically. Here a widow must get a reverse mortgage to pay her tax. In another place a family is forced to sell because they cannot bear the tax increase. In another place an already distressed man, suffering other personal crisis, falls into despair and commits suicide after receiving his tax bill. His friend finds him dead and becomes radicalized about the property tax. I met a woman the other day who told me she and her brothers and sisters were all pitching in so that their mother could stay in her house for another year. I met another man, retired, who tells me his tax bill is now higher than his mortgage payment. Even though this comparison is in inflated dollars, it still seems unjust.

Property tax destroys communities. Taxpayers tend to move out of high property tax districts and move into low tax districts. Indigents tend to move in to high social welfare districts, which generally have high property taxes. Marion County lost 6122 people in 2006 and gained 2486 international immigrants. St. Louis has lost sixty percent of its population since 1950. You can now buy one of hundreds of abandoned homes from the city of St. Louis for as little as five hundred dollars. The funny part is that if you buy one of these abandoned houses and agree to fix it up, they will grant you tax abatement. Watch the short but scary video about what has happened to St. Louis. You can find it below in my previous post on the St. Louis Blues.

Property tax causes urban decay and suburban sprawl. Both contribute to environmental degradation. Tax policy that encourages people to move out of town and pave over cornfields and commute great distances is folly.

You can never own your property. Would you tolerate an annual, one-percent tax on the amount of money in your savings account?

Property tax discourages people from improving their homes. In my district a single father bought a derelict house and fixed it up, intending to make it a place for his children. Now that he has fixed up the house, his property tax has risen so much he cannot afford to live in it.

Property tax invites corruption. Property tax so retards economic development that abatements are routinely granted to encourage economic growth. We have appointed commissars who supposedly are clever enough to wisely and objectively waive taxes for some businesses and not others because these decisions will stimulate economic growth. Empowering government to grant corporate welfare to some businesses and not others is government meddling in the economy that corrupts free markets. It gives a few people power to redistribute community wealth in sometimes very self-serving ways. Why not provide property tax relief to everyone uniformly and predictably by eliminating it?

Reliance on property tax creates inequity in education and the delivery of social services. Wealthy districts tend to have a high tax base and low demand for social services. They can afford to dump a high percentage of their tax base into the education systems. Poor districts often contain more people with more needs. Why should the tax base in your district dictate the kind of school a kid goes to or whether there is adequate resources to deal with the homeless?

Why property tax should be abolished, Part 1

March 17, 2008

Adam SmithI have been asked why I am opposed to property tax. The reasons are so many that it will take more than one post. However, I can sum it all up in a single sentence. They are unjust and their injustice injures individuals as well as communities and ultimately undermines the wealth and strength of our State and Nation.

Adam Smith, in 1776, gave us four maxims of just taxation. How does Indiana’s property tax stand up to Adam Smith’s maxims1? Consider the matter for yourself.

1. The subject of every State ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the State.

Indiana Property Tax has no relationship to the ability to pay. Homesteads are assessed for reasons totally unrelated to revenue. Homes do not generate revenue they are an expense. Some business property is assessed based on a theoretical revenue it generates. Most business property however is assessed for reasons other than the revenue it generates.

2. The tax each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, and the quantity to be paid, ought all to be clear and plain to the contributor, and to ever other person.

Indiana property tax is uncertain, unpredictable, and arbitrary. Property tax is defended because of the security it provides to local government budgets, but this has been done at the cost of destabilizing family budgets.

3. Every tax ought to be levied at the time, or in the manner in which it is most likely to be convenient for the contributor to pay it.

Lately, Indiana tax bills have been erratic and unpredictable.

4. Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible, over and above what it brings into the public treasury of the State.

Property Tax is expensive to administer v. sales and income tax. It taxes capital rather than income. Taxing your home is taxing what Adam Smith called a “necessary.” No necessary should be taxed because it was necessary to live. It is like demanding a percentage of your savings account, or a piece of your clothing, or a share of the cornbread on your plate. As practiced in Indiana, it taxes wealth you don’t even have because it taxes unrealized capital gain.

In following posts we will see how the injustice plays out in the real effects it has on people and communities.

1. These maxims come from Adam Smith’s seminal work, The Wealth of Nations, published in 1776. It remains a primary text for every student of economics. Smith was deeply concerned about ethics in economics and previously published a work on social ethics entitled The Theory of Moral Sentiments.


March 15, 2008

dou·ble·speak [duhb-uhl-speek] – noun: language used to deceive usually through concealment or misrepresentation of truth

PinnochioOur legislature has passed the much looked for Tax Relief bill. Do not be fooled. It has no relief in it. The bill is an exercise in double-speak, a sophisticated way of lying. It includes tax caps that are not caps, tax cuts that are actually tax increases, referendums that are not referendums, higher sales tax, and no limits on government spending.

Here is the breakdown.

Non-Tax Cuts. What they are calling tax cuts are actually tax increases. In government-speak what they mean by tax cut is a reduction in the increase they had originally planned.

Non-tax caps. You wouldn’t want to wear these caps in the rain. They are full of holes. If a city gets in a pinch it can appeal to an unelected board, which can set aside the tax cap. Some bond debt is not included in the caps. Certain school expenditures are not part of the cap.

Non-Referendums. There is language about referendums but the loopholes are so big we are likely to never see one. Administrators will be able to administrate right around any need for a referendum–so long as they define their expenditures as separate projects each under twenty million. Your school board is free to spend, spend, spend, without calling for a referendum.

Because of this bill we can be certain of four things:
1. The sales tax will go up.
2. Government spending will go up.
3. Property tax will continue to increase.
4. Property tax elimination is not on the legislative agenda.

When 2010 finally gets here, they will have pulled all the homestead credits so your 1% cap will be on the entire amount of whatever mythical assessment you have by that time.

There is only one way to reverse this situation. Elect legislators with shorter noses.

Democracy is a way of life, not just a trip to the voting booth

March 7, 2008

Deliberative DemocracyI use the term citizen-centered democracy in my platform. Another word for it is Deliberative Democracy. A lot of you may not be familiar with the term or the process. It is not done much in Indiana. It’s certainly unknown down at the Indiana State house.

Explaining citizen centered democracy is a little like explaining square dancing. It is hard to explain but once you have been through it a few times it seems easy. We could develop the habit of using it more in Indiana and I believe we would make better public policy.

I have just added a page to the web site that offers a one page explanation. Here is the link. I hope you will visit the page and read it. If you have questions you can post them right here. I’ll do my best to answer them.

Decoration Day

March 2, 2008

Decoration DayThe primary election falls this year on May 6th, the day after Memorial Day. We seem to have forgotten what Memorial Day is, or was. Now it seems to be just another three day weekend.

It used to be a day when people went as families to the graveyards to remember those who have fallen. Many people called it Decoration Day, because people would decorate the graves with fresh flowers.

The other day, as I walked through the neighborhoods of District 30, I met a great guy who is deeply committed to the idea that we have a country that remembers and keeps its promises. He gave me this quotation:

The Nation that won’t keep faith with it’s defenders, living and dead,
is not fit to have defenders, and cannot have them long.

John A. Bingham,
Representative of Ohio, 1866.

The time may be past when Americans can gather in village cemeteries to honor those past and reminisce about those who made us what we are. We might then consider another, and greater way, of acknowledging what we have been given. We ought to vote on the day after Memorial Day.

Vote your conscience, but please vote.

Decoration Day Ken Morgan

Let’s not let Indy get the St. Louis Blues?

February 28, 2008

St. LouisMany of our nation’s cities have suffered serious loss of population in their central core. Much of this loss is caused by high taxes, although other forces have an influence. Nowhere is this more apparent than in St. Louis where I grew up. St. Louis has lost a half million people.

The math is simple. People tend to move from high tax areas and toward lower tax areas. Today, we heard someone say, “We are one tax increase away from moving to Hamilton county.”

Indianapolis is a beautiful city and I do not want to see it decline because of foolish tax policy. Take a look at this short video on YouTube and see what has happened to St. Louis. Take a look over the edge and see how far a city can fall, then let’s step back take a breath and vow not to let our city reach that tipping point.

See the Short St. Louis Video by clicking here.

Immaculate Heart and the property tax

February 27, 2008

More walking today and more to learn about the property tax. Today I learned how it strikes at one of our city’s great primary schools, Immaculate Heart of Mary School, in Meridian-Kessler. For years families have moved into the neighborhood so they could send their children to this fine school. It is one of those parochial schools that does such a good job of educating children at a remarkably low cost.

Tonight I learned that a family with four children who had been attending the school withdrew their children because of the property tax. They loved the school. The mother had been driving them to the school every day. The family had been planning to move into the neighborhood because of the school.

It didn’t happen. The property tax in Meridian Kessler drove them away. Instead, they moved to Carmel. So the school lost four students and the income from their tuition, and the neighborhood lost a fine family that would have settled in for a decade or more.

Those who say that property tax is essential for supporting the public schools do not seem to grasp that high property tax undermines the public schools by driving away the tax base. Those who defend the property tax because of the stable income it supposedly provides lose sight of the long term destabilizing effect on communities.

Minnie and her Property Tax

February 26, 2008

The shoe leather campaign began today. You learn a lot when you just walk the city you live in and knock on doors and talk to people. You find out how many homes are empty, how many need repair, and then you meet someone who touches your life. Today it was an old woman. We will call her Minnie. That was my grandmother’s name.

Minnie has been living in her house for over 40 years. Now she lives alone, except for her little dog. She stays active, does some volunteer work, especially at the polls, every election. We talked to her about the property taxes. She was worried about them. She got more worried about them when we told her about the makeup bill that is coming. She didn’t realize that the governor’s reprieve last fall wasn’t a permanent thing. She just has her social security and a small pension.
Laura, my wife, called the assessors office, to see if we could get the gauge of what she is up against. It wasn’t pretty. The folks in the assessor’s office were helpful though and checked her records. They found that she had not filed her exemption for being over 65. That will be considerable help to her. They are sending the form and Laura will see to it that she gets it filled out and sent in.
The over 65 exemption is an attempt to limit the harshness of the property tax. It does that, if you know enough to file it. That is the problem with administrative fixes. Most people find it difficult to work their way through the bureaucracy. People fall through the cracks. She has been overpaying for years.
Even though Minnie is going to get some help, the fact that she needed it made me angry again about the property tax. It’s just not right.
I should also thank my blessings. At least I have a new friend.

Ken Morgan