Posted on Fri, Nov. 03, 2006

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Cap on ballot isn’t just bad for most taxpayers; it’s bad policy

By CINDI ROSS SCOPPE

Associate Editor

THERE ARE two legitimate ways to calculate taxes for homes and other property — based on what they’re worth, or based on the purchase price.

The constitutional amendment on the ballot Tuesday asks voters to scrap the first method for a third, completely unfair, random and illegitimate method.

This illegitimate method is to base most people’s taxes on the current value of their property, but to base a few people’s taxes on some fraction of the current value, with the precise fraction varying from property to property and from year to year.

Those advocating this change argue that it makes sense because it will give a break to longtime homeowners.

If that were true, it would be defensible. After all, there is great value to people living in the same home for years or even decades. It’s perfectly legitimate for the state to encourage that stability through its tax code. (I think there are better ways to encourage stability, but this is defensible.)

But it’s not true.

Oh it’s true that some longtime homeowners will get a break from this. And it’s true that some of the people who will pay higher taxes are people who just moved into the neighborhood.

But most longtime homeowners won’t get any break; to make matters worse, they’ll have to subsidize the taxes of the select few who stand to benefit. And some of those who benefit will be people who just bought their homes — or one of those high-rise timeshares sprouting up from the coast to Columbia — a year or two earlier.

What matters isn’t how long you’ve owned your home or other property, but how fast your property’s value increases.

Amendment 4 says the taxable value of your property can’t increase by more than 15 percent every five years. But most homes in our state increase by less than 15 percent every five years. When Charleston County imposed a 15 percent cap just on homes a few years ago, only 24 percent of homeowners benefitted.

And what did those 24 percent of homeowners do to deserve a tax break? They were fortunate enough to own property that was increasing in value much faster than the property owned by the other 76 percent of homeowners.

Of course, we hand out tax breaks in this state for all sorts of reasons that make no sense to me, so this might not be such a big deal if this were just another tax break. It’s not. Unlike the tax break the Legislature hands out, this one is a tax shift.

Contrary to popular belief, reassessment does not increase tax collections. It’s redistributes the tax burden. If reassessment results in one person paying an extra $1,000, then by law it must result in several other people paying a total of $1,000 less. This amendment will not do anything to change that zero-sum calculation. That’s why it’s a tax shift.

Let me explain by using a hypothetical county, where the total taxable value of property is $100 million, and the tax rate is 100 mills. If the taxable value of property doubles, to $200 million, after reassessment, then the tax rate must be cut to 50 mills. That’s the law. So everyone who owns a car gets a tax cut; so does everyone whose property didn’t double in value. (Local governments can turn around and raise the tax rate again after they lower it, but that is a separate issue, and will not be affected by this amendment.)

If this amendment passes, then the total taxable value of property in our hypothetical county won’t double, even though the actual value of property did. It might go up to $150 million. (The total is more than $115 million because the cap only applies to property that is not sold.) That means the tax rate will only drop to 66 mills. So rather than getting a 50 percent tax cut, most people will get just a 33 percent tax cut.

Now that you get the concept, let’s look at some real numbers. Richland County isn’t the best example, because property values are increasing faster than the state as a whole, so more people would benefit here than elsewhere. But Auditor Harry Huntley calculated what would have happened if a 20 percent assessment cap had become law in 2004, so I have data: 41 percent of all properties would have been taxed at less than their full value.

That would have taken $50 million off the tax rolls, so the tax rate would have been 16 mills higher than it actually was. The 59 percent of property owners who paid taxes on the full value of their property would have paid more, as would all vehicle owners and most industry. Even some of the 41 percent who got an assessment break would have paid more, because the higher tax rate would have offset the lower taxable value of their property.

By now, the folks pushing this change are standing on their kitchen tables yelling “Class Warfare!” because without me saying it, most of you have figured out that there is a very strong correlation between people who are well off and people who are fortunate enough to own property that’s increasing in value much faster than the property owned by most people in our state.

There are exceptions, of course.

Some dumps on Lake Murray are now worth astronomical amounts of money because of the land on which they sit. And we’re all familiar with the tragedy of African-Americans who had to sell coastal land that had been in their families since Reconstruction, because people became willing to pay astronomical prices for coastal property, which made their property more valuable and drove their taxes out of reach.

Those are the exceptions. And there are simple ways to deal with those exceptions, next year, if voters reject this amendment.

If you live in a modest home in a modest neighborhood, your home’s value is not increasing by more than 3 percent a year. And if you live in a trendy neighborhood, particularly if it has really expensive houses in it, your property values just might be going up by more than that. Of course, you know that. That’s one reason you moved to that neighborhood: You figured it was a good investment.

For everybody except you in the trendy neighborhoods, this change is a very bad deal. For all of us, it’s very bad policy.

Ms. Scoppe can be reached at cscoppe@thestate.com or at (803) 771-8571.