One measure of good taxation is whether a tax encourages people to do silly things to avoid taxes. There’s no reason to hide the radio in the basement except for property taxes. There’s no reason to park the car across town, so it won’t be spotted when the assessor comes by, except for property taxes.
Indiana auto dealers used to hold February tax sales, to run their inventories down by the March 1 assessment date. We don’t see those sales now that the inventory tax is gone. The sales were caused by property taxes, not by dealers’ judgments of best business practices.
Now the Indiana General Assembly is likely to consider another narrowing of the property tax base by eliminating taxation of personal property. Almost all personal property is business equipment, like that used in factories, office buildings and utilities. What silly things do businesses do because of Indiana’s tax on business equipment? They invest in Illinois and Michigan instead of Indiana, that’s what. That’s silly from our point of view anyway. Those states do not tax business equipment; so sometimes it’s less costly to operate a business there. Indiana may be missing out on investment, growth and jobs because of its business equipment tax.
Eliminating part of the tax base may have economic advantages, but it creates some thorny problems, too. What about the revenue local governments lose? When the property tax on cars was dropped, the revenue was replaced by another tax. What about the shifts in tax payments from businesses to other taxpayers? When the inventory tax was dropped, counties were allowed to protect homeowners from property tax increases with a credit funded with local income taxes.
As I said, Shepherd’s property tax story has a dark ending. The sheriff auctioned off the family household property of one of Ralphie’s friends, right on the front lawn, for not paying their taxes.