Indiana has caps on property taxes. This year the caps reduced property taxes by about $768 million or 11 percent. Indiana has local option income taxes that counties adopt to reduce property taxes some more. All counties now have local income taxes.
Common sense says that when a county adopts a tax-relief income tax on top of tax-reducing caps, taxes will be even lower.
Wrong again, common sense! Sometimes the combination of tax caps and local option income taxes can increase total tax bills and local government revenues. It’s the paradox of local option income taxes.