By Morton Marcus
Gross assessed value may be the best indicator of economic progress for a neighborhood, city, county or state.
We don’t have good numbers on the market value of real estate. Sales disclosure forms may not do the trick, if they are not audited. The gross valuations of county assessors can be challenged by property owners. No one challenges when the assessments are too low. So these gross assessments are a minimal statement of value.
The GAV of the property we own is listed with our property tax bills. It changes as the market value of homes in our neighborhoods change, if there are a minimal number of home sales in the neighborhood. Assessors follow a manual from the Indiana Department of Local Government Finance, so there should be statewide uniformity.
DLGF’s data base provides the net assessed value of property, but those figures are the result of political fiddling with presumably objective values to lower the taxes of selected groups of property owners.
Homeowners and farmers are the primary beneficiaries of our property tax practices. In a state that pretends to treat all persons the same, persons with a mortgage on their primary residence get a $3,000 deduction in their assessed value. Plus, every such homeowner gets a standard $45,000 deduction.
Then there’s the granddaddy of deductions. An assessment under $600,000 drops by 35% (25% over $600,000). That’s a whopping $35,000 on a $100,000 home.
Thus, a home with a GAV of $100,000 has $83,000 in deductions, leaving a net taxable value of just $17,000.
We’re not done yet. The legislature has designated part of the flat-rate local income taxes to reduce local property taxes. They also bamboozled Indiana voters into putting a constitutional cap on property taxes.
For homeowners’ primary residences, that cap is one percent of the GAV or $1,000 on that $100,000 home. Indiana’s median property tax rate in 2020 was $2.04 per $100 of assessed value, or $347 in property tax on that home with the $17,000 taxable value. Since the tax ($347) is less than the $1,000 cap, the homeowner gets no value from the constitutional amendment and pays $347.
With homeowners getting lower assessments, the costs of local functions do not decline. Hence, lower assessments require higher tax rates to come up with the funds supporting public services.
However, legislators have instituted controls on property tax rates and made local governments dependent on state funding or special tax referendums. Thus did our state legislators get their desired control over the local governments they consider inferior, if necessary, creatures.
Confused? Thank a legislator. If GAV approximates market value, why not just use GAV times a lower tax rate to raise the necessary funds for localities? Want smaller government, then simplify government practices.
Morton Marcus is an economist. Reach him at [email protected].