The new tax menu

Taxes -- and how governments collect them -- have subtle and far-reaching effects.\nTake Indiana's local governments -- cities, counties and townships. Most of their revenue comes from property taxes, based on the value of buildings and land. This system worked well in the 19th and early 20th centuries, when economic activity was primarily physical. \nBut the economy is no longer tied to the land as closely as it once was. Instead of manufacturing and agriculture, most economic activity today is in the service sector, which includes everything from Arby's to advertising firms. \nThe tax system, though, is stuck in the pre-Civil War era. So property taxes rest too heavily on some parts of the modern economy. Businesses with millions of dollars a year in revenues may pay only a fraction of their incomes compared to some homeowners. \nBecause local governments provide many essential functions (among them, police and fire protection, sanitation services, education and welfare), our flawed tax system hurts Indiana. For example, seniors with fixed incomes vote against building new schools because they can't afford the increased property taxes. If local governments could rely on income or sales taxes instead, they could serve residents better by sharing the tax burden more equitably.\nLike many, State Rep. Steve Heim, R-Culver, is dissatisfied with the situation. \n"Government, by its very nature, is conservative and slow to adapt," Heim said in an interview in his State House office. "That's not always a bad thing, but you can be too slow."\n"Local government and the way we pay for it has essentially remained unchanged since 1851 (when the state constitution was adopted)," Heim said. "Let's pull out a blank sheet of paper and ask, 'Can we design a more streamlined government that's more efficient and responsive to the taxpayers?'"\nHeim, a first-term legislator, has introduced a bill (H.B. 1124) to create a study committee to investigate alternatives to the property tax. \nWhy a committee? First, Indiana has a part-time legislature, and any massive change to state law shouldn't be a rush job. Study committees allow legislators more time to gather information on difficult subjects.\nSecond, any change to tax systems has to take into account the state's variety of local governments. The needs of large counties like Allen (Fort Wayne) are different from those of small counties like Benton. \nWithout a study committee, the legislature might create a one-size-fits-all solution, Heim said. That could be a problem. If property taxes were replaced by sales or income taxes all across the state, some counties might not have enough sales or income to keep their government going.\n"It's dangerous for a bunch of state legislators to make judgments without input from local levels," Heim said. His bill provides that local government officials representing the interests of different types of local governments would serve in the committee.\n Ideally, the committee would give a menu of tax systems that local governments could choose from to fund their schools, sheriffs and sewers to the general assembly and the governor. Urban, industrialized counties like Marion could choose to shift their taxes from property to income or sales taxes, while rural counties like Gibson might choose to keep the system they have now.\nIn the end, Heim said, he'd like to see the people of each county make the final decision. "Taxpayers and voters are pretty smart. They know what's fair, what's in their best interest," he said.\nHeim is right. Voters are smart. If his bill is passed -- and it faces a long road to the governor's mansion -- they'll have the information they need to decide whether they want to keep an antiquated tax code. And they'll make the right choice.