Yoder POV: The disappearing tax
If the Legislature would allow this new option, counties like Elkhart that have experienced huge drops in property values can receive needed revenue.
Posted on Feb. 12, 2014 at 2:57 p.m.
The LOIT might not be a terrible idea, but more specifics on the plan will be needed in order to judge it. The concept of a “disappearing tax,” though meritorious in concept, is extremely rare in reality, so it is understandable that many people are skeptical.
— Richard Leib,
The Elkhart Truth, Feb. 7, 2014
The so-called disappearing tax is called the CBR LOIT or Circuit Breaker Relief Local Option Income Tax. It is the brainchild of a subcommittee of the county’s intergovernmental forum, a collaborative group of local elected officials who work together to resolve issues of common concern to all units of local government.
LOITs were first conceived by the Indiana General Assembly as an additional tax for local government units to adopt. Their purpose is to reduce property taxes and fund public safety-related projects and economic development related activities.
When the Legislature created the tax caps to place a limit on property taxes, it added three new LOITs as options for counties to replace the expected revenue loss. These new LOITs are the Property Tax Relief LOIT, the Levy Freeze LOIT and the Public Safety LOIT.
The tax caps create a calculation called Circuit Breaker Credits – this value is the difference between your total tax bill and your tax cap. If your tax bill is higher than your cap, you get a credit on your property tax bill and you pay less. This credit to the taxpayer represents a revenue loss to local government and schools. The LOITs are intended to help cover this revenue loss. It is shifting tax revenue from property taxes to income taxes.
When the recession hit, property values dropped substantially. This lowered the tax cap levels on property and increased the credits to taxpayers – and substantially lowered income for government. As property values increase, the circuit breaker credits will be reduced, providing local government expenses increase at a slower rate.
The three existing LOIT options are designed to be permanent taxes. Before the recession, Elkhart County was surviving the circuit breaker losses without these new taxes. What if we can do so again? One key to answering this question is how fast property values will recover. Until we know the answer, even after reducing spending, local governments and school transportation programs are still unable to fund required services. The CBR LOIT idea is a variable tax rate with a maximum set at 1 percent and the minimum is 0 percent. The rate is tied to the Circuit Breaker Credits – it automatically adjusts each year. No action is required by the County Council. The tax disappears when the circuit breaker credits disappear.
If the Legislature would allow this new option, counties like Elkhart that have experienced huge drops in property values can receive needed revenue. School transportation budgets will be funded and the need for referendums, resulting in property tax increases, is reduced.
However, to date the only thing disappearing about this tax is the support for it in the Legislature.
Mike Yoder represents District 2 on the Elkhart County Board of Commissioners. He can be reached at https://www.facebook.com/commissionermikeyoder.