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Mr. Arp’s tax cut plan

By Jim Sack

Fort Wayne Reader

2018-07-05

Jason Arp wants to cut business taxes, again.

Recently, the councilman reintroduced a reformulated bill to end local collection of the business personal property tax, let’s call it the BPPT. It was quickly sidetracked, stamped “received,” but diverted to Indianapolis for a few tweaks. Now, it’s back.

In short, it is a proposal that sounds simple, but is as complex as a Swiss watch with ramifications that affect us all.

Let’s consider a principle rule of taxation, as mentioned by local tax policy grey-beard, John Stafford: don’t tax what you want to encourage. The rule is simple: tax booze, rough behavior, cigarettes, fire crackers, and loud cars, do not tax
education, property improvements….or shiny new robots.

We should not, Mr. Arp argues, tax tools that enhance business productivity.

He also wants to reduce the paperwork and taxplanery that diverts resources from productivity to accounting and the legal department.

You would think this a slam dunk, but ironically, councilman Arp is opposed by the very people who should support him, the business-friendly cadre of drum beaters at Greater Fort Wayne! Seriously.

Tax abatements of business personal property are used as bait by GFW, Inc. to entice new businesses to the area. GFW can dangle a fat tax break to a business to lure that company to set up shop in Fort Wayne. It is, they say, an important arrow in their marketing quiver.

And there are other opponents. The business personal property tax, the BPPT, is a significant part of the tax mix that supports our schools, airports, library and all the other public institutions we hold so dear. The Second Law of Staffordian Tax Policy Dynamics might read that taxes are but a community’s way of investing in itself, and preparing for the future.

For those institutional leaders, however, they don’t really care about the source of the funds as much as the amount. Their worry is were the BPPT to go away, how would the short fall be made up? Alternatives are few, and the process of changing the tax mix is more than a bit cumbersome. Increase the wheel tax? Up the food and beverage tax? A tax on plastic waste? Increasing the sales tax? Some new tax on something else? The broadest source of replacement revenue, raising property taxes, is blocked by constitutional amendment. The likeliest scenario is to raise your income taxes.

But Arp says, whoa! The revenue loses from phasing out the BPPT would not be that precipitous. Read his lips, no new taxes...

A part of his rational is correct — while new equipment purchases would be free of taxation, the stuff already on the books would still be taxed until scrapped or depreciated out over a decade or so. The erosion of that tax would be gradual, but it would be an erosion and take tens of millions from our institutions.

But, he continues to rationalize that, in theory, no tax on new equipment would lead to faster equipment replacement and a more prosperous business sector, thus prompting more industries relocating here, a plethora of new jobs and, consequently, more income tax revenue to off set the BPPT loses.

Maybe.

A fly in that ointment is that businesses buy equipment for efficiency, to reduce the number and importance of humans. Robots replace workers at GM and McDonalds. Credit card payment at the pump mean no more pump jockeys, computerized self-check out results in fewer check-out workers at the Meijer.

The rub, as one recent speaker at a public hearing said, is that the revenue loss would be real, while the replacement revenues are speculative. Until and unless, others argue, there is a agreed source of funds designated to fully replace the BPPT, the idea is a gamble.

A few years ago Mr. Stafford, fellow tax policy expert Larry DeBoer of Purdue, and others helped then city Controller Pat Roller, Mayor Henry and city council, led by Dr. John Crawford, rejigger the mix of taxes we pay to keep our community competitive. Your payroll taxes increased.

Our tax system is an intricate convolution of rules and knock on effects. Every change ripples through our community in ways seen and unforeseen. Taxes are but the way we pay for our community’s agenda. So, no tax increase should be entered lightly; each creates winners and losers, some encourage good behavior, sometimes we do penalize bad behavior. Given the increasing complexity of taxation we should only make change with full and professionally advised consultation.

The current city council is hardly up to that task. As one councilman says, “I sell food for a living.” On our current council, two, maybe three, members have the educational underpinnings and the daily curiosity to grasp the implications of changing tax policy. Remember that law of unintended consequences, the “gee, I didn’t think of that” phenomenon? Most members of council need help to supplement their thin financial resumes.

As trends go, it is archaic to rely only on the 19th century concept of wise elders, community Minutemen who put down plow and hammer to point the way to the future. It is rather akin to asking your plumber for financial planning advice, or your oncologist to advise on wiring a house.


It seems time to professionalize the process by making Messrs. DeBoer and Stafford’s studied advice a regular, institutionalized and budgeted process.

As for Councilman Arp’s proposed tax cut, there will be a public hearing on the plan on July 24th beginning at 5:30pm. It matters.