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Shifting the weight

Tuesday, October 20, 2009

* LOIT represents a shift in taxation from property to income

The shift is on.

In a special meeting Tuesday, the Clay County Council approved a pair of ordinances increasing the County Adjusted Gross Income Tax (CAGIT) to institute what council members had hoped they never would have to: a Local Option Income Tax (LOIT).

(Photo)
Rita Rothrock
"When it first came up, I said I would absolutely not vote for increasing taxes," Council Member Rita Rothrock said. "However, our backs are against the wall and the residents of Clay County will expect the same type of services regardless of whether we pass it or not, and we need to do what we can to keep the county going."

Of the ordinances, one sets a 0.75 percent increase, which serves as property tax replacement on qualified residential property, making it more of a shift than a true increase.

"It is a dollar-for-dollar shift of taxation from a property tax to an income tax," Council President Mike McCullough said. "This will not be generating any additional revenue for taxing units, but recouping some of the lost revenue from the property tax caps."

Umbaugh and Associates, Indianapolis, CPA Manager Jason Semler told The Brazil Times the effect of the increase will be seen on all properties that will be under the 1 percent cap, which begins in 2010, along with some of those under the 2 percent cap.

"The qualified residential properties include all homestead, apartments and rental properties," Semler said.

By passing the property tax replacement LOIT, it opened the door for the council to pass the second ordinance, which sets an additional 0.25 percent for public service.

"The property tax caps look to be really good for homeowners, but not so good for public service," Brazil Police Chief Dave Archer said. "I am for the LOIT because I think we need it. With lost revenue, budgets get tight and when we lose an officer, we can't hire a new one, and while the LOIT may not allow us to get the extra guys, it will help out in other areas."

By passing the Public Safety LOIT, it may generate approximately $1 million in additional revenue which will be spread across all taxing units.

"It will help to keep jobs in public safety, and will hopefully help keep the people safer," McCullough said.

Before voting on the ordinances, the council opened the floor to questions from those in attendance.

Clay County resident Ronald Hofmann asked the council for clarification as to where and how the LOIT would be collected.

"It is basically an adjustment to CAGIT and some will have it taken out as a payroll deduction," McCullough said. "Taxpayers will see the difference on either the CAGIT or County Tax deduction on their paychecks."

McCullough added the council had until Oct. 31 to pass a LOIT, which prompted resident Matt Christie to ask, "Is this a permanent thing."

"There is discussion out there that the legislature may tweak things to allow counties to have the Public Safety LOIT only, so changes could be made," McCullough responded. "However, we are in a position where we can't wait that long to see what they will choose to do."

While council members and those in attendance admitted increasing taxes is never a favorable move, some said there are positive aspects in this situation.

"There are indications that show counties with a LOIT that are applying for grants score higher on the applications, giving them a better chance at being awarded grant funding," Clay County Commissioner Paul Sinders said. "Grants are a great thing because it is funding that does not have to be returned and if we don't get them, someone else will."

Council Member Larry Moss added, "This is a matter of fairness and I have always felt property taxes are one of the most unfair taxes because not everyone is a home or business owner. Although income tax is not very fair either, I believe it is more fair than property taxes because it is more across the board than on just a select group."

McCullough said the council has had the option to institute a LOIT since 2008, but held off, in part, because the county had a healthy Rainy Day Fund, and there was the thought that the state legislature would go back and review House Bill 1011, which put the property tax caps in place.

(Photo)
"One thing that needs to be known is that this is affecting every taxing unit in all 92 counties, but the burden of the decision ultimately falls back on county councils to institute a LOIT for their respective counties," he said. "We aren't passing this to grow county government, but to try to survive and maintain current services, and even with the LOIT, we may have make additional cuts next year and the county has made so many cuts, it is almost down to where personnel is the only place left to look."

Although the council unanimously approved both ordinances, which increases the CAGIT from 1.25 percent to 2.25 percent, it was not a decision that came lightly.

"It has been really tough and we all have been to countless meetings and seminars and constantly juggled figures just to have the hope to keep the county running," Council Member Dolores Johnson said.

Rothrock added, "We have all stressed over this decision, and for me, it has been as much as anything else in my life."

While the ordinances go into effect immediately, the increase in CAGIT will not begin until Jan. 1, 2010.

The next regular meeting of the Clay County Council will be 6 p.m., Monday, Nov. 2, in the Commissioners' Courtroom at the Clay County Courthouse.


Where will it go?

The following is a breakdown of how much estimated additional funding taxing units could receive for public safety (law enforcement, fire protection, etc.) based on the 0.25 percent Public Safety LOIT:

Taxing UnitAmount
Clay County$666,770
City of Brazil$318,915
Harmony$10,728
Carbon$2,002
Center Point$2,475
Clay City$27,410
Knightsville$6,721
Staunton$4,344
Total$1,039,365

Note: Amounts based upon estimated adjusted gross income of $415,746,100.

Source: Umbaugh and Associates, Indianapolis.


Comments
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What Mr Moss isn't saying is that anyone who rents is helping the land owner with his taxes via their rent payments as no landlord is going to not recoup his expenses via rent. The property tax is no more fair or unfair than the income tax. There are people with large land holdings and low reported income and there are people with modest homes and larger incomes. All have planned budgets and spending. No matter which way it goes, one group is going to be taxed a lot more than the other.

Increasing the local income tax is giving those with real estate investment the chance to maintain their property values via local services without the personal investment via taxes on that same property while those earning wages who choose to invest in other ways STILL have to pay to maintain the worth of the property owners' investment. Totally backwards IMHO but the problem did not start at county level so I don't see what other choice the commissioners had. At least they didn't opt for sales tax which skews the responsibility even more.

The fact that Mr Moss's comments make it seem that he doesn't understand this is worrisome. The fact that Mr McCullough is still stating that this is something new is also a bit disconcerting as anyone who gets a paycheck knows that a local option income tax has been in effect for a number of years now and now it is going to be increased: not initiated. Does he not see this in HIS paycheck as well?

-- Posted by Jenny Moore on Wed, Oct 21, 2009, at 6:55 AM

Mr. Moss understands this issue quite well. What you do not understand is that tax replacement applies to residential property only. Commercial property and farmland is not included. Do renters pay property tax? Absolutely, through higher rent. The majority of public services consumed in this county come from people who pay very little property tax. The biggest service being criminal justice. Is it fair to make the property taxpayers to pay all of these expenses? If that is true, why don't you just find the wealthiest among us and have them pay for everything. I think you know what the result of that would be. (They will move!) I would encourage you to debate him on this topic publicly, via the county council meetings or forums. You will find him to be fair minded and knowledgeable.

-- Posted by freepatriot80 on Wed, Oct 21, 2009, at 7:49 AM

Larry Moss made a comment about fairness in taxation that makes me want to ask a question. What would be a fair way to tax the public to pay for the services that the government must provide?

No one wants to pay taxes, but everyone wants the services and other things provided by taxes, except when government bodies waste money or spend foolishly.

If you tax property by value and use, some people feel that the renter or leaser is not being taxed even though they actually are through the owner charging them the tax in the rent and making the payment for them. When you tax by income, everyone pays directly. Everybody pays either way, but it can make a difference in the amounts that the individual pays.

While this would change the tax structure from top to bottom, wouldn't the fairest way of to determine the amount that an individual or entity should contribute to the common good be to tax profit?

-- Posted by Leo L. Southworth on Wed, Oct 21, 2009, at 8:50 AM

So why not cut personnel and services? Every other business and area govenmental entity has had to. Does the council really believe the citizens wouldn't understand that some services need to be cut, due to tighter budgets. Do they really believe citizens wouldn't prefer fewer services to higher taxes! Higher taxes in the present economy is the last thing this community needs. This tax will be permanent. Eventually the property tax caps will be repealed and we'll be stuck with both.

-- Posted by fiscallyresponsible on Wed, Oct 21, 2009, at 8:57 AM

What services do you propose cutting? Law enforcement. That makes up 80% of the budget.

-- Posted by freepatriot80 on Wed, Oct 21, 2009, at 12:33 PM

I don't have that answer, but the council has suggested that to not institute the tax would mean a reduction in services. Perhaps they could share what services would need to be cut. The Mayor of TH has told citizens that the would eliminate leaf pick-up in 2010 and quantified the cost savings. Law enforcement likely can't be cut, because we have already built a jail that we can't afford to properly staff. By the way, an income tax was initiated to help pay for that.

-- Posted by fiscallyresponsible on Wed, Oct 21, 2009, at 12:42 PM

freepatriot80: But residential property is also getting a "break" via homestead exemption. To shift the burden from the residential homeowner twice really skews the financial responsibility of supporting the infrastructure that supports the value of the real estate.

Fiscallyresponsible: Cutting services, even those thought by most to be non essential creates a spiraling reduction in infrastructure that leads to even lower property values and therefore lower property tax revenues. Once intitiated, it is like a mudslide that is hard to stop. A better community infrastructure is exactly what property owners need to support better real estate values and make buying into the community more appealing to those looking for real estate. THAT will bring in more revenue. You have to invest to gain ground. Like a house. It may not be worth much but if you don't maintain the roof, the furnace, the plumbing, etc it will be worth even less.

Leo: I agree that income tax SEEMS to be the fairest way to go but only if 1] we get rid of all the deductions from dependents, mortgage interest payments, and payments in kind in form of stock options which I don't believe are taxed at all. and 2] We become less philanthropic [for lack of better term]when it comes to entitlements as there is a percentage of the population who just have not been raised to be self sufficient and push the limit in order to be prepared to do so. In reality we cannot do this as even if we didn't care about begging widows and children on the streets with no organized services, it's a known fact that crime will end up costing the society just as much had they paid up front for a better educational system so less would go to it for income or temporary relief via drug use. It's all connected. As a society we still are satisfied with getting by on bare minimum level of education when other societies are passing us and that is mirrored by their economic gains as well. No matter from where the revenue comes, we need to realize that more investment is needed in education to make the community more desirable as well as the graduate it turns out more desirable. While there are individuals coming from Clay Schools who do quite well, we have not yet made like efforts the norm. In that way the county is behind the state. Indiana is behind many other states [Tony Bennett just said this on radio this morning] and our country is lagging behind other countries. When this happens then we will have more people bringing in the money that can support our infrastructure better and the amount per person will be equalized a bit more evenly. Maybe too lofty a goal some may think but if we keep lowering the bar, we will never get out of the current situation. That's what got us into this mess both locally and globally.

In the meantime I have to agree with the commissioners about the way they shifted their revenue requirements to the shoulders of the wage earner. They really had no other choice but it's going to hurt my pocketbook more than if we had left the property taxes the way they were prior to the property tax relief that shifted it to additional income tax. There is just no answer that will equally tax every one. Some will always make out better than others no matter what the decision is so we must buck up and pay what we must to preserve what we have and hope we don't lose any more. The commissioners just need to admit this and not make claims that it is any different.

If Mr Moss would like to go over what I paid in combined property and county income tax before the "Relief" and what I pay now and what I will pay next year he will see that not all benefit from this for if you need X dollars and you are getting fewer from one source, you will have to get more from another. Would have been better if the Governor had left things alone so people could have paid what they had been budgeting and not had these increases each year. Only those with extremely under valued homes who in reality had not been paying their share for years were the ones who were going to have to start paying the piper as with the added revenue from them at last, others property taxes would likely not have increased much at all. we fixed one thing that had been broken for years and then broke two more. What a state to live in.

-- Posted by Jenny Moore on Wed, Oct 21, 2009, at 1:18 PM

I agree infrastructure is important. I would hate to see our pristine infrasture deteriorate(haha). What will improve the county revenue is an investment in economic development, but that should have been done years ago. Create jobs, expand the tax base, provide more revenue to local gov't, and the increase in property values will follow. All local government entities, businesses, and families are just trying to hang on right now. To increase taxes at this point is simply not prudent. It will do more harm than good and again we will still have this tax when the property tax caps are eventually lifted.

-- Posted by fiscallyresponsible on Wed, Oct 21, 2009, at 3:00 PM

Its simply amazing how poor clay county has become over the last 20 years. Instead of cutting taxes and increasing incentives for new business, let's just add on to the county tax and watch people flee. Brazil Indiana, population 2,500 by 2012.

-- Posted by coltsbeer on Wed, Oct 21, 2009, at 10:21 PM

I can hear the Realty Signs getting stuck in the ground already..........

-- Posted by reddevil on Thu, Oct 22, 2009, at 1:48 AM

Tulie32: What you propose is a sales tax. We already have a state sales tax. Adding a county one on top of that would REALLY skew the tax rate and put it on those who have less means to pay it as they use a higher percentage of their wages towards neccesary items such as clothing, school supplies already as they are paying the same for those items as those who have more money in their paycheck. Our society is based on those who can, supporting the infrastructure to give a leg up to those who are less able to. Sales tax is far more unfair than both the income OR property tax because with that you collect the same from everyone, even if they have nothing to give. For example: Let's say it costs $20 a week for disposable diapers [imaginary number is it's been a long while since I had kids in them] If mom A makes $50,000 a year and mom B makes $20,000 a year, at the 7% tax we have now you are taxing Mom A at .145% of her income and Mom B .364% of her income. That's what we are already doing with the 7% state sales tax. Add to that all the other items a household needs and put a county sales tax on top of that and the tax is further regressive towards the people in the lower economic level. I don't like taxes but realize that they are necessary in order for a society to function. Income tax at least taxes those according to what they have and Property tax taxes those who have a vested interest in that real estate investment. Sales tax is totally regressive towards the poor. Now would I like to see all the various deductions eliminated from both income and property tax so it puts all on level playing field? Yes, BUT... that's never going to happen as those who make the rules generally are the ones who benefit from all the loopholes; the tax lawyers, the investment gurus, yadda yadda. I for one think they should be ashamed of themselves for pushing sales tax so often but after this last year learning how so many are only in it for themselves in such a high number, the responsibility to do the right thing falls on the local officials who have a more intimate relationship with the people they represent. In this case our county commissioners. They didn't have many choices to choose from. Their solution wasn't the ideal one but I don't see how they could have chosen another. They've seen what cutting corners has done to the local water system. You just can't make do over and over, shifting the responsibility on the future as then there will be some excuse each year for not spending the money. Just wish that those in the past had the forethought to do this and try to improve when the money was there and community was flourishing with coal and other businesses.

-- Posted by Jenny Moore on Thu, Oct 22, 2009, at 7:35 AM

The dollar amount per household of this tax is so miniscule it is not worth arguing about. I'm glad to pay the extra to help our city get out of the hole the past administrations have created for us. I hope the current administration keeps up the forward progress!!

-- Posted by IHMagnum on Thu, Oct 22, 2009, at 11:18 AM

I bet you'd be glad to pay the 3X water bill residents of Centerpoint got saddled with too because Brazil can't balance its budget, climb on board - write'em a check. The more they take, the more they want.

-- Posted by reddevil on Thu, Oct 22, 2009, at 12:12 PM

IHMagnum: It is NOT miniscule! As I said, it's MUCH more than what my property tax reduction was. My property taxes were reduced yes but the county income tax now is going to become 5 TIMES more than that reduction. Before this latest decision it was already 3 times what the reduction was. It is NOT a dollar for dollar shift for everyone as Mr McCullough seems to elude to. They might be losing it from one pot and only gaining the same amount from another but that other pot is being filled VERY differently by different people.

There is no free lunch. Just maneuvers that shift the bill from one person to another. I'm now paying for mine and four others.

-- Posted by Jenny Moore on Thu, Oct 22, 2009, at 1:58 PM

I don't see how having the tax shifted to income would mean paying more than the reduction in property taxes.

Wouldn't an income tax be spread across more people?

Last time I checked, I haven't seen too many of the working teenagers owning their own home so they wouldn't be paying property taxes, but they sure will see the tax coming out of their paychecks too.

-- Posted by axegrinder1313 on Thu, Oct 22, 2009, at 3:40 PM

It's shocking that Mr. McCullough would support a tax increase. Always thought of him as a conservative when it came to financial matters. If Mr. Moss, a professed staunch conservative, votes for this they will run him out of the Republican Party and justly so.

-- Posted by fiscallyresponsible on Thu, Oct 22, 2009, at 3:48 PM

Look at your paycheck stubs and see how much is now being taken out as county tax. times that by how many pay periods you have per year. Take that and times it by .5 and take that answer and add it to what you pay yearly now. That's about how much you will be paying next year. Compare that to how much your real estate taxes were reduced a couple years ago. If the number you will be paying in income tax is lower than your property tax reduction you are one of the lucky ones. If the income tax amount is higher, not so lucky.

Of course the people with lower incomes and higher real estate holdings will make out like bandits. The ones with moderate homes and moderate salaries will most likely break about even but those with moderate homes and higher salaries will pay through the nose.

Then of course those with no real estate will really loose, no matter what they make as their landlords aren't going to lower the rent by the amount of their property tax break so they will be paying for local infrastructure via their rent AND their income tax; double whammy.

I want to make it clear though that I do not blame the county commissioners for doing this. The state government changed the property tax rules. That lowered the local revenue so this is the only way that they can make up for the deficit. I just want them to know that WE KNOW that it is a less than perfect solution that still impacts both the poor and those with moderate real estate holdings, like a family home, as taxes on those weren't all that high to begin with so the relief just doesn't balance out with the added income tax that replaces it.

Doesn't matter how many more people pay income tax than own property. The formula is based on what you make. Not how many people are paying.

The teen working at McDonalds isn't going to make a difference in what I pay. It's all based on individual earnings. Now about 2% of what you make....One thing they left out of the article;what the local tax has been. Only thing they had was that it was going to be raised .75%. I cannot remember exactly how much it has been but somewhere between 1.25 and 1.5% I think.

I will try to find this out.

Don;t be angry with the commissioners but it wouldn't hurt if you bothered your state representatives about this. Some of them tried to get this arbitrary property tax cap made into law so it could be ever changed. Some didn't fully understand how this would handicap local governments and give added power to state level government. While I do have some issues with superfluous township government entities that many states function fine without, telling counties how much they are allowed to collect via property taxes without knowing what needs are, especially with the rising cost of education and changes needed to keep competitive that costs even more, is just ridiculous.

Yes get mad but go to state level. we were duped into thinking that lowering property taxes was a good thing but didn't think to ask how we were going to pay for what they paid for??? Now we know.

-- Posted by Jenny Moore on Thu, Oct 22, 2009, at 5:34 PM

In 2003 the county income tax was raised from 1% to 1.25% in order to pay for building the county jail.

Now adding .75% will make the total 2% if I did not miss another raise between that time and the present.

So pretty much figure 2% of what you make next year on top of state and federal taxes. Doesn't matter if 1,000 people who don't own land are now paying as well, you still pay that 2%

-- Posted by Jenny Moore on Thu, Oct 22, 2009, at 5:41 PM

Sounds like freepatriot80 must be a member of the Moss family. The real idiot comment was Paul Sinders...the comment about raising taxes is sometimes a good thing because we can score higher on grant applications. That is a good reason to raise taxes. Cut services first. Raise taxes later. If public safety needs to tighten their belt then buckle up. How are you going to address the shortfall next year. This is a short term fix for a long term problem.

-- Posted by Lafin on Tue, Oct 27, 2009, at 6:02 PM


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