Like Michael Jackson or that pee bag for fans at football games, every bad idea comes from the best of intentions. At first blush, the 15 percent property tax cap on the ballot next month has its own shiny good news: property tax cuts for some. But the end result is that homeowners whose properties don’t appreciate dramatically will end up paying more than they would without the cap.
While no one would say taxing property is the best tax solution, it’s typically seen as an efficient way to determine wealth and taxpaying ability. But as property values climb, a home’s appreciation means nothing if you don’t plan to sell it, nor does it mean you have the money in your pocket to pay the taxes.
Critics don’t question the need for tax reform, but they do take issue with the tax cap serving as a part of the solution.
Since this isn’t the first time that a cap has been tried in the Lowcountry (actually it’s the third), there’s a wealth of data indicating what a colossally bad idea the cap is. A study by the county assessor’s office in 2000 on the effects of a 15 percent cap found that 46,500 properties would see a reduced tax bill, but 86,500 would see a tax increase because of the cap.
“A cap is going to transfer the tax burden to properties that don’t appreciate as much in value,” says Ellen Saltzman, with the Clemson University’s Strom Thurmond Institute. “That’s inequitable.”
As anyone in local government knows, reassessments aren’t the windfall for government bodies that some perceive them to be. Long-standing state law requires counties, cities, school districts, and the like to roll back tax rates following a reassessment so that they don’t squeeze any more money out of the taxpayers than they did the year before, allowing increases only for inflation or the growth in the tax base.
So properties with substantial increases in values saw a tax increase, but other properties that didn’t appreciate as much or depreciated, like mobile homes and cars, recieved a tax cut. So, if you support the tax cap, you’re not keeping the money out of the hands of greedy council members or an inept school board, you’re taking it from your neighbor.
“I think it’s going to come back and haunt the state,” says Andy Brack, a political columnist that runs the Statehouse Report (scstatehousereport.com). Voters will likely approve the property tax plan in November because they see a tax cut, he says, but it’ll soon settle in that some taxpayers are subsidizing the tax bills of others.
County Council Chairman Leon Stavrinakis, a candidate for the state House in November, has been a long-time cap supporter and, unlike most pro-cappers, recognizes the disparity. He’s just not as worried about that as he is about the tax bill for the other third of the taxpayers.
“Those with properties that are worth more are paying more now and they will continue to pay more,” he says. “My sense of fairness says that we need to share the burden sometimes … In many cases you have people that, instead of getting a $25 reduction, they get a $5 reduction.”
Stavrinakis notes that property owners purchase their homes and don’t have a reasonable way to determine their tax bill years down the road. It’s a much more reasoned argument than the canned response — people are getting taxed out of their homes — that you’ll receive from four out of five politicians.
A study by Brack’s Statehouse Report earlier this year analyzing tax records for 36 of 46 counties found that 3,913 homes were sold for delinquent taxes in 2003, the last year of data available. But the owner is given a year to repay the debt and only 267 of those homes actually turned over ownership. Of that number, it’s impossible to know how many were lost solely because of rising tax bills associated with reassessment.
“The number didn’t show a tidal wave of little old ladies getting taxed out of their homes,” Brack says. “It seems clear the political argument really holds very little water.”
There are alternatives. Other states have created property tax relief plans that apply to homeowners with an evident hardship. In some cases they’ll defer a percentage of tax payments until the home is sold. So why the broad solution by the South Carolina legislature?
As the housing boom drove record sales over the past few years, it also drove up prices along the coast and in some metropolitan areas. Property values began climbing so that, in just a few years, a home purchased for half a million dollars was suddenly worth $2 million. Even though the limits on taxing during a reassessment year left only a third of taxpayers with a more expensive tax bill, it was the third that knows how to get things done.
“There was a really squeaky wheel,” Brack says. “Perhaps I’m cynical about our legislature, but it seems to be more of a race to the solution of the day and not looking for the long-term solution.”
Statehouse candidates recognize the cap and the associated sales tax swap approved by the legislature aren’t finished products. What’s unknown is whether the long-term solution will benefit the many at the expense of the few. With the tax cap as an opening salvo, the odds don’t look good.
MATH OF A TAX SHIFT
Using Charleston County estimates on the impact of a proposed 2001 countywide tax cap, we’ve used the values of Gov. Mark Sanford’s Sullivan’s Island home to determine what the the tax benefit would have been compared to Joe Homeowner, whose property only appreciated 15 percent. These are countywide millage rates and don’t include municipalities or public service districts.