Revolutionize Your Property Taxes with These Indiana Reform Proposals!

In Indiana’s legislative session, the debate over local taxes has taken center stage, sparking discussions on crucial reforms. While the state’s property tax system is considered competitive on a national level, rising property values in recent years have led to discontent. Governor Mike Braun’s proposal to curb property tax growth ignited discussions in the General Assembly, resulting in multiple proposals on amending local tax structures. This article delves into the current local tax system in Indiana, dissects each proposal, and explores the risks associated with transitioning from property taxes to local income taxes.

The Existing Local Tax System in Indiana

1. Property Taxes and Local Income Taxes:
   Localities in Indiana rely on two main sources of tax revenue: property taxes and local income taxes. While property taxes have historically been the primary revenue source, local income taxes have been gaining traction. Property taxes, as of 2022, make up about 83 percent of local tax revenue, with local income taxes contributing 12 percent.

2. Property Tax System Ranking:
   Indiana’s property tax system ranks favorably nationwide, with set limits on property tax bills based on a property’s assessed value. The state offers homestead exemptions and imposes a levy limit regulating the growth of property tax collections annually.

3. Recent Trends:
   Inflation-adjusted median housing values in Indiana have surged over the years, leading to an increase in property taxes paid by homeowners. Despite this, Indiana boasts the lowest effective property tax burden among neighboring states since 2015.

• Local Income Tax Rates:
  While state income taxes have decreased in Indiana, local income tax rates have seen a significant rise since 2014, posing challenges such as increased tax burdens, revenue volatility, and possible negative impacts on employment.

Three Proposals

1. Gov. Braun’s Original Proposal:
   Governor Braun’s plan involved modifying the homestead deduction and capping property tax bill increases to provide relief to homeowners. While aiming to ease the burden on current homeowners, this plan could result in revenue shortfalls for local governments, affecting service provisions.

2. Senate Amendments:
   The amended Senate Bill 1 introduced stricter levy limits and a local option property tax deferral program to assist homeowners. The amendments aimed to provide limited relief to homeowners while potentially impacting revenue for cities and school districts.

3. House Amendments:
   House Bill 1402 proposed increasing exemptions for personal property taxes and transitioning to a flat supplemental homestead exemption. However, the bill’s restructuring of the local income tax system could lead to a significant rise in overall income tax burdens in Indiana.

Conclusion

Each proposal offers its own set of benefits and challenges. Incremental changes are recommended over sudden tax reductions, given Indiana’s competitive property tax system. It’s crucial to prioritize levy limits over assessment limits for maintaining revenue stability. Shifting property tax revenue to local income taxes may not be conducive to economic growth and could prompt behavioral shifts among residents. Indiana must carefully balance tax rates to remain competitive and attractive for residents and businesses alike. Stay informed about evolving tax policies by subscribing to updates from our experts.