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Appalling policy
•Each Indiana county theoretically has a county income tax council.
•Each city and town in a county is assigned a “weighted” vote based on its population; the county council’s vote represents only residents who live outside cities and towns.
•In some Indiana counties – including Lake County (which includes Gary) and St. Joseph County (which includes South Bend), the income tax council must meet to vote on any change in county income taxes. That’s because neither any single city nor the unincorporated portions of the county include a majority of the county’s population.
•In some rural counties, there is no need for a tax council because the majority of the residents live outside any municipality, giving the county council sole authority to determine county income taxes.
•In some other counties – including Allen and Delaware – the majority of residents live in the county seat. Because most Allen County residents live in Fort Wayne, the City Council has sole power to set county income tax rates.

County’s tax fight

Allen County officials have every reason to protest state policy that gives the Fort Wayne City Council power to tax citizens it doesn’t represent. The policy is an example of taxation without representation. But there are important points the county commissioners and council members neglected to bring up in their attack on a proposed local income tax hike:

•The poor state policy is the fault of the Indiana General Assembly, not city officials.

•If the city council raises income taxes, homeowners countywide who have not reached the property tax caps will enjoy reduced property taxes.

•In addition, a higher local income tax means more revenue for county government.

•Crucially, if county officials are so certain they do not need additional money, they can further reduce property taxes by an amount roughly equal to the additional income tax revenue. Such a reduction would transfer some tax responsibility from property owners to wage earners, which would especially help homeowners with fixed incomes.

In a letter to Mayor Tom Henry and City Council members, the three county commissioners and seven county council members accurately and rightly pointed out that if the city council raises taxes, “such action would leave our constituents who live in unincorporated portions of Allen County with little or no representation on the matter.”

The unfair authority given to the city council to raise income taxes for county residents who live outside the city is a result of a misdirected, long-established state policy. (See box.) State lawmakers obviously need to establish a more representative policy. One way would be to allow only the county council to set countywide rates but for cities to have the authority to set income taxes for city residents.

County officials were misleading when they wrote that the unrepresented county residents “would fail to receive all of the benefits and services associated with the increase.” True, they would not receive all of the benefits, but many homeowners would see lower property taxes, and county officials could use the additional revenue for additional tax relief or additional county services.

The Fort Wayne City Council should not have the power to raise taxes for people it doesn’t represent. But county officials can help by pressing state lawmakers to change this unfair law and by considering further relief on the taxes they do control.