Income taxes versus property taxes

Income taxes versus property taxes

As promised in a previous post, “Taxes, taxes, taxes”, I mentioned doing some math on income taxes versus property taxes. Here is that follow-up!

TIFs work similar to abatements in that they pull property taxes from the general essential services funds. One difference is the time frame: TIFs=20-30 years, abatements are usually for 10. Abatements are typically partial and not a full forgiveness of the tax burden. The main difference between the two though is that in a TIF property taxes are still collected, they simply go to a redevelopment commission instead of a city/town/county council. They go to fund more growth instead of essential services. Abatements are an incentive that allows a business to not have to pay property taxes, usually on a sliding scale. The idea with an abatement is to help cover the expense of starting up or investing in improvements in a location. Realize though, that sometimes abatements are still also awarded inside a TIF.

Now that we have the background, let’s get into some math. I will be using a recent example for my numbers.

The jobs created are about $16.80 an hour. The company has promised to hire 35 jobs.

The state income tax is 3.4%. So therefore the STATE will collect $1190 a year per worker. The state gets to determine how this money is spent, not the county. $1190 a year times 35 jobs = $41,650.

The county’s income tax is 2%. So therefore if the employee LIVES in Clark, the COUNTY will collect $700 a year per worker. $700 a year times 35 jobs = $24,500. (If the employee lives outside the county, it drops to .75%!)

Now, in this example the company assessed value at stake was well over $10,000,000. Since Indiana has the 3% property tax cap, we’re potentially talking about a $300,000 loss to the local taxing districts. ($10m times 3%) In a TIF, the taxing districts will lose out on $300,000 a year for 20-30 years. So growth proponents would have us believe that the loss in property taxes will be made up for by the gain in job growth. At most, income taxes get us to $66,150 a year on these 35 new jobs. And that is with giving up much of the control of those funds to the state instead of keeping the control local like property taxes allow. That is assuming that every single one of those 35 people RESIDE inside the county boundaries!

Let’s take it a step further and give the proponents of this shell game the benefit of the doubt, shall we? Let’s imagine that EVERY SINGLE ONE of those new 35 employees buy a brand newly constructed home. Because keep in mind, simply buying a house doesn’t add to our property tax rolls – it must be a NEW home to add more value to the total pot. The lowest price on new construction in this area is around $130,000 and it would be a stretch to assume a person making $35,000 (without a spouse or significant other contributing) would be able to afford such a loan, but we will assume they do for their sake. $130,000 times the 1% property tax cap for residential = $1300 a year in property taxes. $1300 times 35 new homes = $45,500. So now we are up to $111,650 per year in taxes, when we’re still losing over $300,000.

Even if we wish to believe that these people are buying resale homes, allowing others to move up and buy a newly constructed home, we’re still coming up short! In addition, how can this not be considered corporate welfare? You’re expecting the middle class to pay for the city/town/county to “create” their own jobs?

With bigger companies that build even larger improvements, while sometimes offering much lower paying jobs, the county is in even more of a shortfall.

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2 Comments on "Income taxes versus property taxes"

  • Alice Butler says

    So in your example, the breakeven point is $3,721,667 —- if the company’s assessed value is greater than this, the county loses. If it happens to be less, then the county could theoretically “win”. I suppose there could be companies that hire 35 workers at this rate that might have a lower assessed value — but I wonder if the Redevelopment Commission calculates the breakeven point on each company that is given tax concessions in a TIF. Probably not. It would be interesting to research each company within a TIF and calculate how much the county is gaining or losing in each scenario.

  • Mark a. Davidson says

    I was just recently elected to the County Council in Montgomery County. What you have broken down shows what my suspicions have been all along. Do you have any more good information that you would share ? We have three Freshmen on our new Council and we are eager to learn and do our best for the County. Thanks

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