As Jim noted below, the vote to scrap the homestead exemption was the right move for the wrong reason. But more insight on the reasons why Senate Republicans decided to vote against the measure come from Sen. Cuccinelli’s newsletter this morning. The story is the bill was poorly worded and, due to a habit I regularly chastise in my Son, the worthies simply weren’t paying attention when they passed in last session. See if you can follow this:
Note that the language “exempt or partially exempt” does NOT require that the tax exemption be provided to every homeowner or farm. Rather, the 20% is calculated on the TOTAL VALUE of all residential real estate in a locality.
The language “upon such conditions as may be prescribed by the governing body” allows local governments to selectively grant the exemption.
So, let’s look at this in a hypothetical: Say there’s a locality where all of the residential real estate is the same value, with 500 homes each worth $100,000, for a total assessed value of $50,000,000. Our intention is that only $80,000 of the value of each home be taxed; however, the language of the proposed amendment allows a local government to give 100 homes a 100% tax exemption! Yikes. This was not caught last year (more on that below).
This isn’t a tax cut, it’s a welfare program that will get doled out to the politically favored neighborhoods in each locality, which explains why Sen. Whipple and the Dems like it so much. They get to say that they’re tax cutters when what they’re really doing is giving their local government allies the ability to dole out money to favored constituents. How do we know this will happen? Because it already does. For example, in Lynchburg, Ward 2 residents pay less for their trash service, while everyone else pays extra. Who do you suppose folks in Ward 2 vote for, incumbents or challengers?
The language proposed would allow the legalization of political pork through real estate tax exemptions.
I do not doubt that such chicanery would occur. However, I think that rather than going back to the drawing board on this matter, legislators would be far better advised to step away from the this approach entirely. An exemption, while it seems nice and certainly, it would make folks feel a bit richer come tax day, does not address the real problem:
Local governments, like their counterpart the state, are spending addicts. Granted, they all face rising costs, and some of those are beyond their immediate control. But consider this…
Along with my water bill from Henrico County came a glossy, full color insert urging residents to vote for a change in their postal designation from “Richmond” to “Henrico.” The reason? Confused locals are sending tax monies that should go to the County to the city, depriving Henrico of an estimated $5 million per year.
Okay, I can see that point. But how is this concept sold to residents? With an extra $5 million, the County can hire more police, more teachers, build this, construct that, and on and on. No where is the possibility mentioned that the monies could be used to offset — even a tiny bit — the existing tax burden.
The County has it’s eyes on more money…which it intends to spend right away, thus creating additional costs that will only compound in the future. So again, it’s not just taxes that are a problem…it’s spending and the mindset that sees government growth as an unalloyed good.
The idea of a homestead exemption has an almost reflexive appeal to my friends on the anti-tax side of life. And I’m all for tax cuts — so long as we also cut spending. We need look no further than the car tax cut to see why this is so important. Yes, it was something of a shell game. But did this “cut” reduce the overall tax burden? Or more importantly, did it shrink the size of government at all?
I don’t think so. Just as I don’t think the homestead exemption — however written –would have saved anyone much money in the long run.
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