Roy Barnes and Guy Millner have each proposed using state funds to reduce property taxes on homeowners. Both proposals are relatively straight forward.
Barnes proposes adding a new homestead exemption of $20,000, which would be in addition to the existing homestead exemptions, and would be phased in over time. The state would reimburse local gov- ernments for the loss in property tax revenue. Millner proposes an income tax credit equal to 20 percent of a homeowner’s property taxes, up to a maximum credit of $500.
The cost of these two proposals differ. We estimate that the Barnes proposal, when fully phased in, will cost the state government between $610 and $630 million per year, while the Millner proposal will cost between $300 and $320 million per year. However, there are uncertainties regarding the two proposals that when determined could change the cost estimates of the proposals.
The distribution of the tax reduction differs between the two proposals. The Millner proposal provides greater dollar tax relief to homeowners with higher-valued property and to those living in jurisdictions with higher property tax rates (i.e., millage rates). The percentage reduction in property taxes, however, would be the same for all homeowners.
The Barnes proposal provides greater dollar relief to homeowners in jurisdictions with higher property tax rates, but the same dollar relief for all homeowners within a jurisdiction regardless of property value. The percentage reduction in property taxes falls with increasing property value.
For those homeowners who itemize their deductions for federal and state income tax purposes, 30 to 40 percent of the property tax reduction in either plan will be offset by an increase in income taxes.
There are several administrative issues that arise, but none very serious. There will be some additional costs at both the state and local levels associated with administration and monitoring eligibility for both proposals. The Barnes proposal calls for the state to reimburse local governments for the loss in revenue due to the higher homestead exemption; there is some degree of uncertainty that the state will always be able or willing to adhere to this reimbursement.
Both proposals provide incentives to purchase larger housing and to switch from renting to owning. The proposals reduce the differences in property taxes between jurisdictions, and thus, reduce the incentive to live in lower-tax jurisdictions. Since the state government would be paying part of the cost of providing local public services, there is an incentive for voters to demand more local public services. The effects of these incentives are not likely to be very large.