Business versus Schools, Sewers, Etc.

Op-Ed: Businesses versus Schools, Sewers, Etc.
by Craig Ladwig

“The behavior of any bureaucratic organization can best be understood by assuming that it is controlled by a secret cabal of its enemies," wrote the historian Robert Conquest.

With most Indiana cities in economic doldrums, we are told that we can't cut taxes on the job creators. It would endanger the sewer utility fund, they say in Terre Haute. It would put stress on school budgeters, they say in Fort Wayne. And these are the Republicans.

That is hogwash. The first Indiana city that approves an exemption on the business personal property is going to have the advantage. How better to broadcast quickly and cheaply to investors and job creators, local and distant, that your community understands how the world works? Alternatively, who has faith in the current crop of self-appointed cronies organized in quasi-governmental economic “development” groups distributing other people’s money in rebates and favors?

A restaurant owner tells me that the exemption would save him $1,200 next year, enough to invest in one of those fancy cash registers that speeds service and better tracks sales, allowing him to keep more servers on the floor and cooks in the kitchen. You can imagine what it would mean to the operations of a large manufacturer or contractor.

Taxing the property, e.g., machinery and equipment, used to create wealth has been bad policy since the Normans invaded England. Nonetheless, it is being defended in every council chamber in the state.

In that, it is conforming to a journalistic rule of thumb that predicts corruption will follow the inarguable good. For the most effective argument of those who oppose the exemption, including those protecting eco-deco scams, is that it might in unspecific ways hurt public school children.

Bill Waltz, the finance expert for the state Chamber of Commerce, has the better view:

“Companies will buy what they need to operate their business, whether it is exempted from personal property tax or not. But when the value of that equipment is taxed year in and year out for as long as they own it, the purchases are likely to be smaller and less frequent. Businesses must build these equipment purchases, and the personal property taxes associated with them, into their annual budgets. The more new equipment they buy, the more expensive that equipment is. And the more often they renew and replace the equipment, the more they pay. The result: Businesses invest less – and they invest less often. The simple reality: Personal property tax is a deterrent to business growth and economic development.”

So we are left with a situation where we tax certain businesses so that other more politically connected businesses can be untaxed — all so as to dampen economic growth and so that we don’t risk underfunding things that either aren't proper functions of government or aren't working no matter how much money they have.

It appears that the historian was right.

Craig Ladwig is editor of the quarterly Indiana Policy Review.


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