INDIANAPOLIS — Every rookie Hoosier governor spends the first winter in office promoting what they hope to be defining, signature legislation. In 1973, Gov. Otis Bowen was devoted to property tax reform. In 2013, Gov. Mike Pence sought income tax cuts.
Gov. Mike Braun is now seeking changes to Indiana’s property tax system through Senate Bill 1, which proposes cutting these taxes, capping future increases and reforming the system.
“As I continue to have these conversations with Hoosiers, I hear more and more about where they have had to make cuts to their budgets just so they can get by,” Braun said during a fireside chat in Terre Haute last week. “Our state’s legislators must do right by Hoosiers and look out for taxpayers by passing my property tax plan.”
When Doc Bowen successfully campaigned for office in 1972, he was purposefully vague on the particulars of the coming reforms. They would be fleshed out in the General Assembly the following year. He was confronted by what was a building rebellion as property taxes consumed 5% of personal income, according to retired Purdue University professor Larry DeBoer in research published with the Indiana Fiscal Policy Institute.
Not as clear these days is the extent of the crisis. According to DeBoer, Hoosiers pay around 2% of our personal income in property taxes. We pay 7% in sales taxes.
There has been talk about taxing services — lawyers, accountants, hairdressers — an idea Gov. Robert Orr considered in the 1980s but didn’t go anywhere. Orr originally proposed lowering the state sales tax rate and broadening the base to cover all services except for medical and dental services. The idea was rejected by lawmakers.
According to the Terre Haute Tribune-Star, Michelle Whitford of Whitford Properties told Braun: “We have felt the impact of property tax increases.” She cited a hike of 143% in one year after purchasing a “distressed property.” But her 2023 property taxes went down.
“We’re seeing it’s really all over the board. There’s no rhyme or reason,” Whitford said.
Braun’s response to Whitford: “I’m trying to make the case it’s reasonable to expect to cover inflation and a normal growth rate, but it’s unreasonable to expect taxpayers to pay 30%, 40%, 50% or 142%. … I’m asking local governments and school districts to make your case on what we need to do to cover costs from inflation and a reasonable growth rate. Whatever else you’ve done above and beyond that, give the taxpayer relief.”
Senate Bill 1 remains a work in progress. It underwent significant changes this week, with the Senate Tax and Fiscal Policy Committee amending the bill to drop a Braun proposal setting a 3% annual cap on property tax bill increases. The revised bill would set new limits on how much property tax levies could grow each year, allow counties to set up a system allowing homeowners older than 65 to defer tax payments and establish a first-time homebuyer tax credit.
Braun’s office said that the committee’s proposal took “steps in the right direction,” but promised to aggressively pursue spending cuts. It must pass out of the Senate by Feb. 20. The plan’s final version won’t likely be forged until late April.
The key Senate sponsor, Travis Holdman, shared legislative session updates Saturday at the John Jay Center for Learning in Portland. “We’re working hard to come up with a plan; we’re trying to toe the line between being responsible to the taxpayer but at the same time realizing we have to have local government services, schools, cities, towns, government, and we’ve got to be responsible for those folks,” he said, according to The Commercial Review.
When it comes to local government, taxes are like a balloon. Press it down on one end and it expands at the other. Or as DeBoer said last year at the Indiana Fiscal Policy Institute: “When you increase deductions for one group, you shift taxes to other groups. And so raising deductions for homeowners would shift taxes to farmland owners and business owners.”
Holdman, who chairs the Senate Tax and Fiscal Policy Committee, said Senate Bill 1 would make $1 billion in cuts, increasing to $1.4 billion by the end of Braun’s term. “Some units of government would not even be able to make their debt obligations,” Holdman said, according to The Commercial Review. “So we’re looking to trim that back significantly from where it is today.”
A Legislative Services Agency analysis said Braun’s initial proposal could cost Indiana school districts about $1.1 billion over three years.
Braun said he was open to discussion on lessening the impact on local governments and school districts while raising skepticism that those units need all the additional tax revenue from recent years to deal with inflation. “If they can make the case that every penny of that went into higher expenses they’ve contended with, I want to make sure that they shopped around in the way they should have,” Braun said at a news conference last week. “But I almost can guarantee that, other than for a few jurisdictions, they went above what they’re trying to make that argument on.”
This will be a fluid situation between now and late April. With rookie governors, it always is.
Brian A. Howey is senior writer and columnist for Howey Politics Indiana/State Affairs. Tom Davies of State Affairs contributed to this column. Find Howey on X @hwypol.
