Officials call on Indiana Legislature to fix broken Lake tax break

2014-01-12T00:00:00Z 2014-04-11T18:30:35Z Officials call on Indiana Legislature to fix broken Lake tax breakBy Bill Dolan, (219) 662-5328
January 12, 2014 12:00 am  • 

CROWN POINT | Lake County is home to a well-meaning, but poorly worded, tax break meant to help its poorest homeowners but enriches their more wealthy neighbors.

The state might get around this year to dealing with a glitch in the Lake County Residential Property Tax Credit, which has been giving up to $300 to about 25,000 county residents each year since it was put on the books in 2001.

Legislators wanted to help county homeowners earning less than $18,600 a year, who were beginning to pay higher property taxes following a major overhaul of the tax system that shifted more of the burden of supporting local government from businesses to the homestead.

However, almost half the people taking the credit have incomes well above the $18,600 threshold.

They did so legally, because the law has a loophole so big that 23 people pulling down $500,000 a year or more jumped through it and pocketed this boon for paupers.

This jumped out of an official survey of more than a dozen little-known tax deductions, Indiana state Sen. Brandt Hershman, a Republican from downstate Buck Creek, said recently.

"I'm hard pressed to understand why someone making half a million a year in unearned income deserves a property tax credit," he said.

Lake County Commissioner Roosevelt Allen, D-Gary, said he has been trying for some time to draw the General Assembly's attention to this anomaly.

"There should be some revision. It would increase revenue for local government in Gary, Hammond East Chicago and Lake County government," he said.

There is some $3.5 million annually riding on the issue, which revolves around the question of how the law should define income when deciding who is and isn't entitled of the tax credit.

The statute in question, IC 6-3.1-20, gives the credit to any Lake homeowner who paid Lake County property taxes on their principal residence, didn't claim the homeowner's residential property tax deduction on their state income tax return form and reported an earned income of less than $18,600.

It was passed when property taxes were about to double and triple on the county's oldest homes, which previously had been undervalued by elected local assessors. The change would weigh most heavily on low-income families the credit was designed to assist.

However, earned income is defined under state law as wages, salaries, tips and other employee compensation and net earnings from self-employment, but not many forms of business or retirement-related income, such as Social Security and pension benefits.

That excluded about 19 percent of all county taxpayers who report they are over the age of 65 or blind and who represent three out or every four persons getting the credit, according to the Indiana Legislative Services Agency, which does research for state legislators.

Allen calls the unearned income exclusion an error in the law's design. "It shouldn't be for the wealthier retirees, who are taking advantage of that error. The income (entitlement) has to be earned income rather than passive income."

Hershman said giving public money to people with incomes that in a few cases are more than 26 times the stated $18,600 threshold rankles the most.

"Even if it's not a large number, it's just not good government," he said.

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