Lawmakers Propose Local Income Tax to Offset Homestead Property Taxes

WARSAW, Ind. — Approximately 300 Hoosiers gathered Tuesday night in Warsaw to hear high-ranking legislators discuss proposals concerning property taxes. The event, which had seen a promotional flyer circulating since August, brought together state lawmakers, local government officials concerned about potential revenue cuts, and homeowners worried about their ability to keep their properties.

Sen. Ryan Mishler, R-Mishawaka, who chairs the appropriations committee in the Indiana Senate, opened the discussion by stating that proposals for a complete elimination of property taxes are unrealistic. He cited the $54 billion in local debt statewide currently backed by property tax revenue as a primary reason.

Instead, Senator Mishler introduced a solution that he said leverages existing mechanisms. His proposal suggests that local governments could increase their local income tax rate. The revenue generated from this increase would then be used to provide owner-occupied homes with a 100% credit on their property taxes, phased in over a five-year period.

According to Mishler, all but 14 counties in Indiana currently possess the capacity to cover the full amount needed for such a credit. He noted that the remaining counties are expected to reach this capacity over time, thanks to reforms passed by the Legislature in 2025, known as Senate Enrolled Act 1. This new legislation is designed to slow the rate of property tax growth for local units, a change that has raised concerns among many local officials and residents about potential cuts to services.

To illustrate the concept, Mishler provided the example of Kosciusko County, which would need to cover $44 million in homestead property taxes under this system. He clarified that homeowners would still receive a property tax bill due to the underlying bonds, but with a 100% credit, "the bill is zero." The only exception would be if a community voted to approve a referendum for additional property taxes, such as those for a school district or other local entity.

Mishler emphasized that this credit mechanism avoids shifting the tax burden to other classes of property, such as agriculture or businesses. He stated, "This really gives the locals the ability to make that decision. You know, it’s their money. It’s their decision to make, and it’s already there. So, we don’t really do anything legislatively to allow them to raise bills. So that’s it. The key thing here is to simplify. It would take it down to zero."

Data from a Legislative Services Agency report indicates that property taxes on owner-occupied homes amounted to nearly $4.1 billion in 2025, representing 38% of the $10.6 billion in statewide property taxes billed during that year.

The legislators on the panel, including Mishler, took questions from the audience, which included individuals expressing skepticism and others advocating for more comprehensive action. Mike Felker questioned why the state doesn't return excess revenue to counties, stating, "It’s public money." Another attendee argued that the proposal places the burden on local entities and highlighted the significant role of property taxes in funding public safety.

Sen. Chris Garten, R-Charlestown, who is slated to become the next Senate president pro tem after the November election, responded to public concerns. He stated that local elected officials should "have to justify why you need more money out of my pocket. That’s the case you make to your taxpayers."

In closing, Senator Mishler noted that he personally would likely pay more in income taxes than he would save on property taxes, having downsized his home. He presented the proposal as "something that can actually work" and "good policy for everyone as a whole."

Rep. Craig Snow, R-Winona Lake, who serves as vice chair of the House Ways and Means Committee, discussed an alternative proposal from a Republican legislator. This idea would eliminate all property taxes and replace the revenue by extending the state’s 7% sales tax to cover a wide range of currently untaxed services, including haircuts, construction labor costs, and legal fees. Snow mentioned that lawmakers began moving property taxes from a levy-based to a rate-based system in 2025 and expressed hope for further steps in the 2027 session. He acknowledged that the full plan is not yet "all figured out" but anticipates it will take "three or four years" to implement fully.