Published: September 23, 2007 11:12 pm            

SMITH: Tax thinking headed South

Renters look to be losers

I took a little trip to Arkansas — The Natural State — a couple years ago to visit a friend, and during my visit, I made a grocery run. Imagine my surprise, as a lifelong Hoosier, to find out I had to pay a 6 percent sales tax on my hot dogs, buns, hamburger, mustard, etc.

Sales tax on groceries? Something in the concept rankles. Groceries, unlike beer, soda, cigarettes and other vices, are necessities. Why would you put a tax on the food you feed your children?

Well, the idea down south (where taxing groceries is common) is that you can use that grocery tax revenue to keep the property taxes low on that mansion/horse farm down the road.

Which leads us back to the crisis du jour in the Hoosier State, where a group of well-heeled homeowners in the Meridian-Kessler neighborhood in Indianapolis have convinced state officials something MUST be done to lower their property taxes.

What that means, for all of you who work two jobs to scrape together enough money to pay the rent every month, is that the state legislature, the Howard County Council and most probably the Kokomo Common Council, are coming for your wallets.

Economist Robert Samuelson recently theorized in Newsweek that increasingly, our government’s basic function is that of a wealth-transfer device from young workers to older retirees.

In Indiana, our government is a bit behind the southern states in that function (i.e. Tennessee, no income tax, but a 6 percent tax on groceries), but we’re trying our best to catch up.

This year, we’re paying a new county option income tax so the cost of jailing people won’t impact property taxes further.

Next, we’ll more than likely be given a new local option income tax to pay, as another property tax lowering scheme.

Then next year, when the state legislature meets, we’ll probably be given a sales tax increase in return for giving the state total control over the funding of our local schools (and another property tax cut).

Again, for all of you who work for a wage and rent, your net benefit in all of this will be zero. Zilch. The same goes for all of the individuals out there who own rental properties.

My prediction is nothing will be done about the massive tax breaks flowing to corporations, which used to have a limit on how much depreciation they could claim on equipment. Now they can depreciate everything down to zero, thanks to moves made when both houses of the Indiana General Assembly were under Republican control.

That same legislature passed a research and development tax credit that further shifted taxes from business to homeowners. Both the R&D and depreciation tax breaks hit at the same time we felt the full impact of the elimination of the state’s inventory tax, creating a perfect storm of sorts.

But you won’t hear any discussion of the monumental impact of those tax breaks from our governor, or from the Indiana Policy Review, or from the members of the Howard County Council. You won’t hear any mention either of the freeze Mitch Daniels put on the state’s contribution toward our local property taxes, the property tax replacement credit.

They’re all too busy trying to sell us on the benefits of new, exciting income and sales taxes, which they promise will lower property taxes for homeowners, at least until such time as the legislature deems it necessary to pass additional tax incentives for favored interests.

It’s a reactionary “solution” to a problem created by a reactionary legislature desperately trying to lure business to a Rust Belt state. Too bad for us the southern states are so far ahead in the race to dump the tax burden on the working poor.

Years ago, I remember discussing Indiana’s tax system with the former chairman of the Indiana Senate Finance Committee, Larry Borst, who was subsequently deemed too moderate by voters in his district.

Borst spoke of the three-legged stool, the solid base of our tax system, whereby sales, income and property taxes were collected in roughly equal amounts. The system, he argued, was fair, progressive and good for the state.

Now the vultures are circling, ready to dismantle that system.

End property taxes, they say. Let us declare all of the unsold property we’re sitting on as inventory, so we don’t have to pay taxes on it. Pass the burden of government to someone else.

You can bet that “someone else” will be whoever wields the least political clout. And in this day and age, that usually means the people with the least money.

Scott Smith may be reached at (765) 454-8569 or via e-mail at scott.smith@kokomotribune.com

        

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