Democratic candidate for governor Jennifer McCormick released her property tax plan last week, which an Indiana University economics professor said addresses concerns taxpayers have raised.
The six-point plan would cap the increase in property tax bills at 10%, increase the homeowner property tax deduction by 40%, increase personal exemptions by 150%, and increase the renters tax deduction by 33%, according to a release about the plan.
The plan would ease the burden of rising property tax rates and give state officials time to take a “holistic look” at state funding, according to the release.
“The state can provide property tax relief now for those who need it while finding a long term solution to address local funding needs. It is simply a question of budget priorities,” McCormick said in the release.
McCormick’s plan is similar to the property tax plans proposed by Republican candidate Mike Braun and Libertarian candidate Donald Rainwater in adjusting deductions for residential homesteads, said Justin Ross, professor of public finance and economics at the O’Neil School for Public and Environmental Affairs at Indiana University.
But McCormick’s plan is unique in that it tries to use the income tax code to provide other forms of tax relief, Ross said.
“It reflects listening to what they are hearing voters complain about,” Ross said. “It’s looking for ways to reduce in particular property tax burdens for people who are living in their home.”
McCormick’s plan calls for a 40% increase in the homeowner property tax deduction, which would increase the maximum homeowner property tax deduction from $2,500 to $3,000. The Indiana Legislative Services Agency estimated in 2023 that this increase would save homeowners $8.8 million beginning in 2025, according to the release.
The plan would also expand property tax deductions for senior citizens by increasing the income threshold for homeowners over 65 making up to $40,000 for individuals and $50,000 for households with joint returns and assessed value of real property up to $300,000. The Indiana Legislative Services Agency estimated in 2022 this shift would cost approximately $14.7 million to $21.8 million per year, according to the release.
Currently, the income threshold for deductions for senior citizens is $30,000 for individuals and $40,000 for households with joint returns and assessed value of real property up to $200,000, according to the release.
McCormick is proposing to offer relief for senior citizens through the income tax code, Ross said, which has been implemented by other states. Under this proposal, homeowners would put a line on their income tax forms that would allow them to deduct some amount of property taxes, he said.
The plan also focuses on disabled veterans by increasing the cap on assessed value from $240,000 to $350,000 to expand qualifications for those veterans on total disability or at least 62 years old with at least 10% disability. The Indiana Legislative Services Agency in 2023 estimated this would cost $6.8 million per year, according to the release.
The plan would also increase the amount of exemptions on state and local income taxes from $1,000 to $2,500. The Indiana Legislative Services Agency estimated in 2023 the increase would result in approximately $500 million in savings to taxpayers — $333 million of savings in state income taxes and $173 million of savings in local income taxes, according to the release.
Since most homeowners also pay income taxes, Ross said, this would allow them to reduce their income tax bill.
“This is a way of giving people property tax relief by lowering their income tax bill,” Ross said.
McCormick has also proposed to cap property tax bill increases at 10%, which would mean individual homestead owners would receive a refundable tax credit to offset property tax increases if their property tax bill grows more than 10% compared to the prior year. This would exclude referendums that schools pass, according to the release.
The Indiana Legislative Services Agency estimated in 2022 that a 10% cap on property tax bill increases would result in approximately $23.5 million of savings to individual homestead owners starting in 2024 and $7 million in each subsequent year, according to the release.
For renters, McCormick would increase the renter’s income tax deduction from $3,000 per year to $4,000 per year. The Indiana Legislative Services Agency estimated in 2023 the deduction would cost approximately $28 million per year, according to the release.
Whenever the residential homestead share of the tax burden is reduced, it shifts to other property tax payers, Ross said. The other property tax payers also have property tax caps, so they likely won’t pay enough to cover the reduction in the homestead taxes, he said.
“There is some potential loss of revenue to local governments from that mechanism. On the state side, if the state is essentially forgoing part of the income tax revenues then that’s part of the cost,” Ross said.
If the plan were implemented, Ross said it would be interesting to see how residents, who have raised concerns about their property tax bills, respond to receiving property tax relief through their income tax.
Other states that have done this, Ross said, have reported that residents tend not to register this type of tax plan as a savings because they still pay property taxes and income taxes.
“It is less clear addressing it on a separate pathway through the income tax will be enough to temper that because it’s easy for people to forget. The income tax process is just an entirely separate thing that you do,” Ross said.
“Will people say, ‘Now that I’ve got income tax relief through it, now I am not as upset about my property taxes?’ Will it work from that political viewpoint is just an open question.”
akukulka@post-trib.com
