"“I knew we needed substantial relief,” said state Rep. David Orentlicher (D-Indianapolis) of his plan to cut property taxes by $2.8 billion. Orentlicher’s plan would enable homeowners and renters to see their property taxes cut by 62 percent and their total taxes reduced by almost $700 million. For homeowners who saw their property taxes double this summer, Orentlicher’s plan would roll back the entire increase and cut their property tax bill another 24 percent below last year’s amount.
In putting together a plan that he hopes can be acted on at the beginning of the coming legislative session in November, Orentlicher has incorporated a number of interlocking elements. “There’s no one silver bullet here,” he said. “You add a little bit here, a little bit there and suddenly you have substantial relief.”
The plan includes $400 million in immediate savings for taxpayers by transferring child welfare costs to the state budget. Another $900 million in local costs, including school renovation and equipment costs, bus replacement costs and juvenile incarceration, would also be assumed by the state. Homeowners then would receive a property tax cut of nearly $800 million out of a total cut of $1.3 billion.
Orentlicher argues that by absorbing several areas of local spending into the state budget, there will be better oversight to limit future increases in spending, or what he calls “property tax creep.” He says, “When we move these costs to the state, we know who’s accountable: the Legislature.” To further contain spending and increase accountability, the plan will also require a county’s board of Tax and Capital Projects Review to sign off on total property tax rates, with time allowed for public consideration.
Another part of the Orentlicher plan calls for a $300 million corporate tax increase to restore a fairer balance between individuals and corporations. Orentlicher says that the state has rightly created a number of economic incentives for business over the years — repealing the inventory tax, for example. But, he adds, “We need to restore a better balance and I think business understands that.” Although he has felt some push back from the business community, Orentlicher says that he believes most members of the corporate community find his $300 million recommendation to be a reasonable amount. Orentlicher continues to solicit input from business, asking them to tell him “what’s the least difficult way for you to pay $300 million in taxes.”
Orentlicher’s plan places a greater emphasis on computing taxes based on the ability to pay. A 1 percent increase in the state income tax would be used to provide property tax relief. This would replace the option for counties to raise their income taxes by 1 percent. Homeowners and renters would account for $960 million of the income tax increase.
Orentlicher argues that by replacing property taxes with income and sales taxes, taxes will be fairer because tax rates will vary less from one township to another township, and a person’s taxes will be more predictable from year to year.
For every dollar in property tax relief for homeowners and renters under Orentlicher’s plan, 18 cents will come from fiscal restraint, 13 cents will come from businesses and 69 cents will come from individuals.
Other provisions included in Orentlicher’s proposal are aimed at preserving stability in budgeting and protecting persons with low or fixed incomes from unaffordable property tax bills. To preserve stability in budgeting, the new sales tax, income tax and corporate tax revenues will go into a property tax relief fund. That will prevent diversion of the revenues to other uses, Orentlicher says, and it will ensure that surpluses in some years are stored for years in which revenues decrease. People with low or fixed incomes will have their property taxes capped when they exceed a certain percentage of the homeowner’s income (for example, no more than 1-4 percent on income when income is below $30,000).
Orentlicher says that, so far, response to his proposal has been largely positive. “Most peoples’ view is that this has a lot of the right ideas.” He will take the next couple of months to continue soliciting feedback and to put his proposal into the form of a bill that he can bring to the Legislature in November with the goal of approval by January so that county treasurers have time to calculate tax bills according to a new system. “I wanted to get it out now,” Orentlicher said of his proposal, “because there’s a lot of uncertainty out there. … It is very important to talk in a concrete way about solutions.”