Vote Your Wallet on Question 4

15 percent tax cap bad deal for most homeowners

Many homeowners will feel tempted to vote yes Tuesday on ballot Question 4, believing that passage would reduce their future property-tax bills. This first impression can be deceptive, according to S.C. economists. Their analysis is that if Question 4 passes, a shift in the overall property tax burden would occur, raising property tax bills on two-thirds of S.C. homeowners over time. Only one-third of homeowners, with fast-appreciating expensive homes, would benefit.

Passage of Question 4 would override the current S.C. constitutional requirement that taxes be applied uniformly and equally. Instead, the S.C. Constitution, as amended, would allow owner-occupied homes to appreciate no more than 15 percent over a five-year period (3 percent per year) for property taxation purposes. Once the owner sells his house, any "trapped" market value would be added back into the assessment, and the new owner would pay taxes based on the higher assessment.

This assumes, of course, that all residential property goes up at least 3 percent per year. In those parts of Horry and Georgetown counties that are well away from the coast, this isn't necessarily true. So the passage of Question 4 would do nothing for those folks - except perhaps jack up their property taxes.

Also disadvantaged by Question 4 would be the owners of homes whose value goes down - which happens a lot in South Carolina. The question would allow future assessments no lower than 2006 valuations. So folks whose homes lose value would be stuck with higher taxes than they should have to pay.

Moreover, some folks whose homes do appreciate more than 15 percent between five-year state-mandated property-tax reassessments could still end up paying higher property taxes. That's because the roughly one-third of homeowners whose residences are assessed at more than $200,000 would get proportionally larger tax cuts.

Whenever reassessment takes place, as it did in Georgetown County this year and in Horry County last year, school districts and local governments must roll back their millage rates. The law doesn't allow them to make a "profit" as a result of rising property values.

Rollback, in turn, forces a tax-burden ripple effect across a given county's entire property-tax base. The part of the tax burden that high-end homes would shoulder under current law would be redistributed to all other property owners - including the vast majority who own homes valued, for tax purposes, at $200,000 or less.

Folks who own taxable business property, meanwhile, would suffer the most from passage of Question 4. The tax-cap wouldn't apply to their buildings. And because they pay taxes on 10 percent of the assessed market value of their property, as opposed to 4 percent for owner-occupied residences, millage rollbacks due to revaluation would wallop them with a higher tax burden.

Readers who feel the need to "do something" about property taxes should remember that all homeowners will benefit in 2007 from the tax-swap legislation the General Assembly passed this year. School operation property taxes will disappear, cutting the typical tax bill in Horry and Georgetown counties by more than half. The sales tax will rise to 6 cents per dollar to compensate.

Tax relief will happen regardless of whether Question 4 passes, and the owners of high-end residences will benefit most. Because those good folks have gotten enough of a break already, The Sun News recommends that readers vote their wallets on Question 4. For most of them, that means voting no.