WEST LAFAYETTE -The Indiana General Assembly may consider eliminating property taxes on personal property in the upcoming session. Personal property is almost entirely business equipment. Eliminating this tax could encourage more business investment in Indiana, especially since some of our neighboring states have already eliminated this tax.

Personal property owners pay about a billion dollars in property taxes to local governments, which is 16 percent of total property taxes. Eliminating this tax would create some big tax and budget issues for legislators to consider. Here's why.

Indiana limits the revenue that local governments raise from the property tax. There's a maximum property tax levy restricting most local government operating funds. The maximum levy increases from the previous year's maximum based on a state formula. Most of the levy does not depend on changes in assessed value.

If we eliminate personal property from assessed value, total assessed value would be smaller. We calculate property tax rates by dividing the levy by assessed value. With the levy limited and assessed value smaller, most tax rates would go up. Personal property owners would pay less, but higher tax rates would shift this tax burden to everyone else.

Or taxes would shift, except for the property-tax caps. Indiana's constitutional tax caps limit homeowner tax bills to 1 percent of assessed value before deductions. The caps limit rental housing, second homes and farmland taxes to two 2 percent of assessed value and business land and building taxes to 3 percent.

Personal property elimination would raise tax rates and tax bills. In many cases, these higher tax bills would exceed taxpayer caps. Taxes paid by personal property owners would shift to other taxpayers, but the part above the caps would be unpaid. Local governments would lose that revenue.

Which taxpayers would pay more, and which governments would lose revenue? We have solid answers to these questions. In 2012, the Legislative Services Agency did a study of personal property tax elimination, which is published in the Oct. 4, 2012 minutes of the Commission on State Tax and Financing Policy,

The study estimated that $963 million in personal property tax payments was paid statewide in 2012. If personal property was removed from the tax base, other property owners would pay about $453 million in higher taxes, and $510 million would be revenue lost to local governments.

Homeowners would pay $170 million in added taxes, a 9 percent increase in the average homestead tax bill. Businesses would pay $176 million more on their land and buildings, which implies that businesses with a lot of equipment would see tax reductions while those with little equipment could see tax increases. Rental housing and farmland owners would pay the remaining $108 million.

Two factors cause huge variation among counties: how much personal property the county has, and how close the taxpayers are to their tax caps. In Delaware County, for example, personal property owners pay about 15 percent of property taxes; however, a large number of taxpayers are already at their tax caps. Further increases in tax rates would not raise their tax bills. But that means that some revenues that local governments collect from personal property taxpayers would not be collected from other taxpayers. The LSA study estimates that 76 percent of personal property taxes would become lost revenue, while homeowner taxes would rise only 7 percent.

In Brown County, almost no taxpayers are at their caps. More than 99 percent of personal property taxes would be shifted to other taxpayers. But Brown taxpayers have little personal property, so there's not much tax to shift. Homeowner taxes would go up only 4 percent.

Consider Pike County, though. Personal property owners pay 41 percent of Pike's taxes. Very few taxpayers are at their caps. With so much tax to shift, about two-thirds of personal property taxes would become lost revenue, yet homeowner tax bills still would increase 31 percent.

Businesses pay about a billion dollars in property taxes on their equipment. If those taxes are eliminated, about half the amount would shift to other taxpayers, and about half would be lost revenue to local governments. That's what would happen, anyway, if the General Assembly made no other changes. Possible "other changes" will be the subject of debate.

DeBoer is a professor of agricultural economics at Purdue University.