The ladies and gents with the Commonwealth Institute must be working overtime because they’ve weighed in with their third major research paper in the past couple of months. “How Property Taxes Hit Home” examines the impact of rising property taxes and a proposed remedy, the so-called Homestead exemption.
As one would expect from a liberal-leaning think tank, the report emphasizes the regressive nature of Virginia’s property tax as well as the proposed remedy for that tax. But as a tax conservative, I have to concede that authors Michael Cassidy and Sara Okos make some valid points.
As this chart shows (click on chart to view larger, clearer image) low-income homeowners pay a larger percentage of their income to property taxes than homeowners in higher income brackets.
That would seem to be a strong justification for the Homestead exemption, which would allow local governments to exempt up to 20 percent of a homeowner’s property from taxation, to provide relief from soaring property tax bills. This proposed constitutional amendment, which was been passed by the General Assembly last year, must be passed again this year and then approved by voters in a referendum.
So, what’s not to like? Business lobbies aren’t happy about the bill because it would shift much of the tax burden to commercial taxes. The actual amount would vary from locality to locality, depending upon the balance of residential vs. commercial property in the tax base. But Cassidy and Okos are more concerned about the implications for income redistribution. “By reducing the taxable value of all Virginians’ homes by the same proportion (20 percent),” they write, “the homestead exemption stands as a tax giveaway to homeowners with extremely valuable homes.”
At the lowest end of the income scale are not homeowners but renters, constituting about a third of the population. Renters would gain nothing from the homestead exemption. Indeed, the authors point out, insofar as apartment buildings and other commercial housing would shoulder a higher share of the tax burden, those costs would be passed on to renters. In other words, renters could be losers from the exemption.
If the goal is to provide tax relief for homeowners of more modest means, Cassidy and Okos argue, there are better alternatives, such as exempting the first $20,000 of a property’s assessed value. That would provide an equal break for all homeowners, not one that benefits wealthier property owners disproportionately, and there would be less blowback for renters.
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