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January 17, 2002

State's 'tri-lemma' puts ag economist's model in demand

WEST LAFAYETTE, Ind. – The governor has used it, state legislators are plugging into it, even the news media have run numbers through a Purdue University agricultural economist's tax prognosticating tool.

While much more scientific than a crystal ball, this method for predicting the effect of tax changes on Indiana families is facing some interesting challenges.

"The state's current 'tri-lemma' – reassessment, tax restructuring and a revenue shortfall – means there are a lot of variables that we can play with in calculating tax impacts," said Larry DeBoer, professor of agricultural economics.

His model, or spreadsheet, was developed over the past few years using data on Hoosier incomes, home values and expenditures based on sales and excise taxes.

The "families" DeBoer most commonly looks at for tax impacts are single-person households, two-person families and the family of four. He said about one-third of Indiana households have only one person. A little more than one-third (36 percent) have children, with the average number of youngsters just over two.

"Some people are more typical than others," noted DeBoer, "But the model tries to mimic the experiences of most taxpayers."

The scenarios he creates not only juggle the amounts of current tax commitments, but also forecast the effects of taxing products or services not currently taxed.

"Suppose the state decides to start taxing personal services, such as haircuts," DeBoer said. "The model can add sales tax to those items and that is calculated into the total tax bill for our imaginary families."

With so much up in the air this legislative session, DeBoer said it's hard to predict what will happen to Hoosiers.

"There could be some people who may see significant tax increases," DeBoer said. He describes the "family" most at risk for paying higher taxes as "those who own older homes that have been undervalued previously, living in areas with lots of business property while having high incomes and spending most of their money."

On the upside, there could be some lucky folks who actually see their tax burden decrease.

"Low income homeowners living in less expensive homes, who save as much as they can, may pay less in taxes overall," DeBoer said.

He said people often want to compare what they pay now in taxes to what they would pay under the governor's tax plan. The comparisons can be tricky, though.

"People should keep in mind that what you pay now is going to change regardless of what the Legislature passes because of the court-ordered changes in property tax assessment," DeBoer said. "The status-quo is not an option."

Regardless of the outcome, the current legislative session should be interesting. "We've had reassessments before, budget shortfalls and tax restructuring," DeBoer said. "But it's been at least 40 years since they all happened at once."

Writer: Beth Forbes, (765) 494-2722, bforbes@aes.purdue.edu

Source: Larry DeBoer (765) 494-4314, deboer@agecon.purdue.edu

Ag Communications: (765) 494-2722; Beth Forbes, bforbes@aes.purdue.edu; http://www.agriculture.purdue.edu/AgComm/public/agnews/

NOTE TO JOURNALISTS: Larry DeBoer can demonstrate how the model works and customize tax scenarios for news story purposes. Contact DeBoer at (765) 494-4314, deboer@agecon.purdue.edu.

Related Web sites:
Indiana General Assembly
Governor Frank O'Bannon

Purdue News Service: (765) 494-2096; purduenews@purdue.edu


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