INDIANAPOLIS -- Homeowners who don't itemize deductions on their federal income tax returns would still get a break for property-tax payments under separate bills filed by U.S. Rep. Baron Hill and U.S. Sen. Evan Bayh.

The lawmakers are aiming to help Hoosier homeowners facing dramatic property-tax increases this year, but the proposals would benefit anyone across the country who pays property taxes but takes the standard federal income tax deduction.

"When I went home -- especially during the August break -- people were coming up to me on a regular basis and complaining about the increase in the property taxes," Hill, D-9th District, said yesterday. Constituents said "they wanted something to be done."

Already, federal law allows people who itemize tax deductions to subtract what they pay in property taxes from their income. That reduces their ultimate tax liability.

But homeowners who claim the standard federal deduction don't get a break for their property-tax payments. In Indiana, that's an estimated 940,000 people, said Bayh, D-Ind. The legislation would change that.

For a couple with taxable income of $100,000 and paying property taxes of $2,000, the change would mean a $500 cut. For an individual with an income of $50,000 and a property-tax bill of $1,200, the cut would be $300.

Taxpayers' savings would depend on the amount of their income and their property-tax bills.

Bayh said yesterday that the legislation would end the "double taxation" that results when people who don't itemize their deductions are paying federal income taxes on money they've used to pay property taxes.

"It doesn't solve the entire problem at home with regard to the tax burden," Bayh said. "But it is a step in the right direction, and at a time like this every bit helps."

Peter Sepp, vice president for communications for the National Taxpayers Union, said most homeowners should not be taking the standard deduction. That's because interest from a mortgage also qualifies as an income-tax deduction and is available only to those who itemize.

But Sepp said the proposal by Hill and Bayh would particularly help older homeowners who've paid off their mortgages and have little other reason to itemize their deductions. He said the group would support the idea.

"Anything that keeps a few more tax dollars from being swallowed up by the federal beast would be a reason to celebrate," Sepp said. "Taxpayers in high property-tax states would rejoice over something like this."

The legislation already has some bipartisan support, with Republicans from Indiana signing on. Lawmakers from Pennsylvania and New York also are co-sponsors. But the proposal's chance of passage is unclear.

Bayh has broached the idea with Senate Finance Chairman Max Baucus, who has sponsored similar legislation in the past with the deductions targeted only to lower-income earners. Hill has not yet talked to House fiscal leaders about the proposal.

The legislation would cost $7 billion to $13 billion, Bayh said.

Under the pay-as-you-go budgeting system in Congress, lawmakers would likely have to find reductions in spending to offset the revenue loss. Bayh said that could be done by closing some corporate offshore tax loopholes or by money made available if the United States ends its operations in Iraq.

Bayh acknowledged the cost is "not insignificant."

"But when you put it in perspective, it's the kind of thing we can afford if we make it a priority," he said.

Congress already is trying to figure out how to replace hundreds of billions of dollars in lost revenue in order to repeal the alternative minimum tax. Originally created to prevent the wealthiest Americans from escaping all taxes, the alternative minimum tax has increasingly been hitting taxpayers closer to the middle.

Bayh said a permanent repeal of the alternative minimum tax would run the risk of crowding out any other tax changes, but the property-tax deduction could be paid for if Congress passes only a temporary fix to the alternative minimum tax.

###