Archive for April, 2008

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.