Study: Property tax caps will create jobs, boost economy

Topic: Miller College of Business

February 26, 2010

Property tax caps should boost Indiana's economy over the next few years by increasing homeowner's disposable income and lowering costs for businesses, says a new study from Ball State University.

An analysis by Ball State's Center for Business and Economic Development (CBER) of the economic impact of the property tax caps found that the value of products created in the state (gross regional products or GRP) should grow by $6.2 billion or 2.6 percent and about 97,000 jobs will be created within three to five years.

Property tax limits have been phased in since 2008. This year, the caps will limit homeowners' bills to 1 percent of the property's assessed value. Bills for farmland will be capped at 2 percent of assessed value and commercial land at 3 percent. The state's sales tax was increased from 6 to 7 percent.

"Our study finds that over the long run the property tax caps — even with the sales tax increase — will positively affect production, employment, income and investment in the state," said Nalitra Thaiprasert, CBER research economist. CBER is the research arm for Ball State's Miller College of Business.

"The Economic Effects of Indiana's Property Tax Rate Limits" was co-authored by Thaiprasert, Dagney Faulk, CBER research director, and Michael Hicks, CBER director.  It may be found on CBER's Web site at www.bsu.edu/CBER.

 "Indiana is one of 43 states that have imposed some form of property tax limit, yet there has been little analysis of economic consequences of these policies," Faulk said. "We hope this type of research contributes to the ongoing policy debate on property tax limits nationwide."

The study found:

  • The impact of capping property taxes on the Hoosier economy was negligible during the first few years of implementation with small reductions in GRP and employment.
  • By capping property taxes and therefore increasing economic activity and providing individuals with more disposable income, household income should rise by 2.39 percent or $4.3 billion over the next three to five years.
  • Even with the cap, property tax payments by businesses should increase by 1.77 percent and $103 million within three to five years due to increased business activity.

                                                                                                                            

The study also found that in the first few years of property tax cap implementation, there were small decreases in employment in several sectors, including public administration, restaurants and retail. The number of jobs increased in sectors where property taxes significantly dropped, including wholesale, finance and real estate.

CBER's research indicates that in the next three to five years, employment in every sector will increase.

"In the long run, as businesses respond to the increase in investment as a result of lower property taxes, the state will see employment grow, " Hicks said. "We'll also be more attractive to companies looking to relocate because we have placed limits on our property taxes. This will increase employment opportunities for state residents."

CBER's economic model used to forecast the impact of property tax caps did not take into account changing economic conditions such as the recent recession or the potential impact of Indiana adopting a constitutional amendment to permanently cap property taxes. The Hoosier Survey produced in 2009 by Ball State's Bowen Center for Public Affairs found that about 64 percent of Indiana residents favored the constitutional amendment.

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