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Just Asking for Relief, Not Political Payoff

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By Lowell L. Kalapa

Last week we took a shot at the home exemption explaining why this archaic approach to tax relief for homeowners misses the mark by a long shot, providing an unnecessary tax break for wealthy homeowners while not providing enough tax relief for those just getting by from pay check to pay check.
So what’s the solution? Well, some counties already have the solution in some shape or form. It’s called the circuit breaker. Like a circuit breaker in an electrical box, the tax relief circuit breaker trips when their property tax bill is an “over load” on the taxpayer. In the case of the circuit breakers available in some counties, the threshold varies between 3% and 5% of a household’s income.
In other words, whenever a homeowner’s tax bill exceeds the threshold set by the county, every dollar over and above that threshold is either forgiven or refunded to the taxpayer. So let’s say a homeowner has $50,000 of household income and the county circuit breaker is set at 3%. The valuation of the home together with the tax rate set by the county council produces a bill of $2,000. The 3% threshold of a $50,000 household income is $1,500. Thus, for this taxpayer the property tax bill exceeds the threshold by $500. So the county either forgives the $500 or refunds the $500 after that taxpayer has paid the property tax bill.
Take the taxpayer’s next door neighbor who is a widow living only on Social Security income of $10,000. Her house is almost a mirror image and thus receives the same valuation and, therefore, the same $2,000 tax bill as our taxpayer above. For her, 3% of her Social Security income is only $300. In her case, the circuit breaker allows the county to excuse $1,700 of her tax bill because that is the amount in excess of the 3% threshold for her. Thus, the circuit breaker approach recognizes each taxpayer’s ability to pay their fair share of the tax burden
The circuit breaker blunts the complaint that the rising tax burden is driving homeowners out of their homes. How many times have property tax rate hearings been peppered with outcries from homeowners who you know are making six or seven figure incomes, yet they are complaining that the taxes on their million dollar homes are too high? With a circuit breaker, there should be no reason for many of these upper income taxpayers to complain as they do have the ability to pay their fair share based on their household income.
And that is what is unfair about the home exemption. Because all homeowners get the basic exemption, the rich and poor alike benefit. But the home exemption has to remain modest because it is available to every homeowner, again whether rich or poor. As a result, the county forgoes revenue that could have been raised from a home exemption that is claimed by a taxpayer for whom that amount would hardly make a difference while the poorer family, who could use a little more help, cannot get anything more than the basic exemption.
And unlike the home exemption, the circuit breaker is tied to the rise and fall of a household’s fortunes. If the chief breadwinner loses his or her job this year, the 3% will recognize the loss of income and produce a lower threshold for the property tax of that family. On the other hand, if values rise again the following year, will county officials be as willing to raise the home exemption and produce an even larger loss of revenues?
The circuit breaker also allows county officials to raise property taxes without worrying that the increase will drive families out of homes because they will always be assured that no homeowner’s tax bill is going to be more than 3% of the family’s income. As a result, local council members should have no reservations about raising rates other than the public outcry that rates are already high enough or that the moneys raised from the real property tax are not being used wisely.
And being able to raise property tax rates insures that the county councils have the ability to meet nondiscretionary costs like debt service payments and wage and salary increases. This is a flaw in other efforts to freeze real property valuations or limiting the amount of increase in homeowners’ tax bills to 1% or 2% per year. So before elected officials go off and attempt to appease homeowners and other real property taxpayers with politically popular tax relief mechanisms, taxpayers should demand that they look at a variety of alternatives that will insure appropriate tax relief for those who truly need it and maintain a strong relationship of accountability between the elected officials and the people who must pay the taxes necessary to run county government.
After all, only people pay taxes.

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