(From early 2025.) Our friends in the Statehouse are in their budget session with a brand-new Governor who won an election in which the perceived excess of property taxes was a key issue.
I say the perceived excess because despite what most Hoosiers believe, Indiana’s property taxes are far below what folks in most other states pay. (Indiana ranks 29th in the most recent numbers.)
Not that long ago, property taxes here were a heck of a lot steeper. Back in 1971, they rose to 5% of the average Hoosier property owner’s personal income. Today’s Indiana homeowners pay less than half of that, and they’re still pretty ticked. Imagine how angry they would have been in 1971.
Back then, the General Assembly heard homeowners’ cries and responded by enacting credits that significantly reduced property taxes by reducing a home’s assessed valuation. To make up for the lost revenue caused by these popular property tax credits, the legislators doubled the state’s sales tax to 4%. It wasn’t the last time they bumped the sales tax up to meet a budgetary need such as funding property tax “relief.”
As a result, Indiana homeowners pay less in property tax than their counterparts elsewhere. Yet Hoosiers pay a significantly higher amount in sales taxes. Indiana’s 7% sales tax rate is one of the highest in the nation (just below California’s 7.25%), and as retired Purdue economist Larry DeBoer recently reminded us, 4 of those 7 percentage points were added to replace property taxes.
Something that has long fascinated me is the willingness of taxpayers to embrace concepts like property tax reform without ever giving thought to how those disappearing tax dollars will be made up. When the General Assembly’s members giveth you lower property taxes, they taketh the money back from one of your other pockets. They know you’ll never notice that those extra pennies on your purchases will add up to more than the property tax break over the course of a year.
No matter how much candidates for state and local offices may claim they’re going to slash the budget, the reality is there’s surprisingly little fat or waste. Years of conservative finances have trimmed fat and kept wages well below comparable roles in the private sector, making it tougher for Indiana’s state and local governments to keep good people. When the Statehouse folks tell you that they’re giving you a break on your property taxes, pay attention to where their other hand is headed.
Finally, the reason your property taxes have been increasing isn’t because of government greed. It’s because Indiana’s property tax system is based on recent sale prices of houses similar to yours. Anyone who has been trying to find a home in Hendricks County is well aware of how much property values have climbed in recent years. All that sales data gets fed into a formula that estimates what your home would sell for … and its value gets reduced from that amount by credits. You know, the ones that were added back in 1971 and replaced with higher sales tax.