By Charlie Bethel
Among the taxes Georgians pay, the property tax rises to the top of “most hated.” It is not the tax that takes the most money from Georgians, nor is it a tax that sends relatively large sums of money to the Gold Dome in Atlanta or to Washington. Nevertheless, Georgians despise paying taxes on their land.
For an elected official serving at the local level, casting a vote to reduce property taxes feels good. But capping the annual value increase in property assessments in the name of property tax relief is bad policy for Georgia and no answer to property tax woes.
Assessment caps artificially suppress the taxable value of property that does not change ownership. As a result, owners of similar properties often pay tremendously disparate property taxes. This is a boon for the person with a suppressed value, but everyone else must pay more and often have to make up the difference.
Consider Columbus property owners, who have had an assessment “freeze” on homestead property for more than 25 years. More than 16,000 property owners pay less than $50 in local government property taxes, while newer residents in similar properties may pay upwards of $2,000. That means families who were not fortunate enough to acquire a home in the early 1980s are now subsidizing the property tax payments of those that did.
The difference between a total freeze and a cap on growth in assessment is merely in how long before the poison takes effect. Take Savannah, where a “floating” homestead exemption allows for a limited inflationary increase. The result? First-time homebuyers pay more in property taxes on less valuable homes than do their long-term resident parents in higher-value homes.
California has been at this for 30 years without success. In 1978, Californians adopted Proposition 13 in the name of property tax relief. But the Lincoln Institute of Land Policy found evidence that limits on assessed values, while popular with homeowners and voters, are a deeply flawed measure to counter rising property taxes. Intended to reduce tax bills and slow the shift in tax burdens to residential property, in practice they may actually result in higher taxes on homeowners and unpredictable new shifts in tax liabilities. The Lincoln Institute concludes that severing the connection between property values and property tax assessments would “impose widely differing tax obligations on owners of identical property, reduce economic growth by distorting taxpayer decision making, and greatly reduce the transparency and accountability of the property tax system as a whole.”
One troubling side-effect is the proliferation of efforts to take advantage of the caps by using land trusts and corporate ownership. Because caps are adjusted only when property sells, wealthy landowners and corporations go to great lengths to ensure that property is not transferred or is transferred as infrequently as possible. Ongoing corporate ownership protects the artificially low value and ensures that other property taxpayers continue to carry a heavier burden. While some residential property has been transferred since Proposition 13, corporate ownership has shielded valuable nonresidential property from being assessed at a newer fair market value. Owners with greater resources are able to keep property values (and thus taxes) artificially low in comparison to their neighbors who buy and sell land and homes due to a lack of resources to buy and hold property indefinitely.
If a young entrepreneur who wants to open a business elects to buy a building, the caps come off and the reassessment is at current market value. Meanwhile, the local competition has been in business for 25 years in the same building. The competitor’s assessment is well below market value, keeping taxes much lower than the new entrepreneur’s. The resulting damage to the free market results in a disincentive to new growth and new investment. In effect, the caps distort the economic picture and stack the deck against the new player.
Another unintended consequence of assessment caps is the disincentive to purchase a larger home as families grow or to downsize during retirement. Given the current state of the housing market, it seems contrary to state interests to place a disincentive on housing purchases.
If the intent is for taxpayers to assume the responsibility for keeping individuals in their home, the solution should target the perceived problem with fewer undesirable effects on the market. For example, a “circuit breaker” program that protects individuals from paying more than a certain percentage of their personal income in property taxes on their primary residence could protect low- and fixed-income Georgians without distorting market values or overly burdening unaffected taxpayers.
We expect our legislators to look out for the problems facing Georgia today, tomorrow and beyond. They can’t do it with a “fix” that produces more problems than solutions and rewards wealthy and financially established Georgians and corporations at the expense of the less fortunate.
Dalton (Georgia) City Councilman Charlie Bethel, director of Human Resources for J&J/Invision, wrote this commentary for the Georgia Public Policy Foundation. The Georgia Public Policy Foundation is an independent think tank that proposes practical, market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the views of the Georgia Public Policy Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.
© Georgia Public Policy Foundation (January 30, 2009). Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.
By Charlie Bethel
Among the taxes Georgians pay, the property tax rises to the top of “most hated.” It is not the tax that takes the most money from Georgians, nor is it a tax that sends relatively large sums of money to the Gold Dome in Atlanta or to Washington. Nevertheless, Georgians despise paying taxes on their land.
For an elected official serving at the local level, casting a vote to reduce property taxes feels good. But capping the annual value increase in property assessments in the name of property tax relief is bad policy for Georgia and no answer to property tax woes.
Assessment caps artificially suppress the taxable value of property that does not change ownership. As a result, owners of similar properties often pay tremendously disparate property taxes. This is a boon for the person with a suppressed value, but everyone else must pay more and often have to make up the difference.
Consider Columbus property owners, who have had an assessment “freeze” on homestead property for more than 25 years. More than 16,000 property owners pay less than $50 in local government property taxes, while newer residents in similar properties may pay upwards of $2,000. That means families who were not fortunate enough to acquire a home in the early 1980s are now subsidizing the property tax payments of those that did.
The difference between a total freeze and a cap on growth in assessment is merely in how long before the poison takes effect. Take Savannah, where a “floating” homestead exemption allows for a limited inflationary increase. The result? First-time homebuyers pay more in property taxes on less valuable homes than do their long-term resident parents in higher-value homes.
California has been at this for 30 years without success. In 1978, Californians adopted Proposition 13 in the name of property tax relief. But the Lincoln Institute of Land Policy found evidence that limits on assessed values, while popular with homeowners and voters, are a deeply flawed measure to counter rising property taxes. Intended to reduce tax bills and slow the shift in tax burdens to residential property, in practice they may actually result in higher taxes on homeowners and unpredictable new shifts in tax liabilities. The Lincoln Institute concludes that severing the connection between property values and property tax assessments would “impose widely differing tax obligations on owners of identical property, reduce economic growth by distorting taxpayer decision making, and greatly reduce the transparency and accountability of the property tax system as a whole.”
One troubling side-effect is the proliferation of efforts to take advantage of the caps by using land trusts and corporate ownership. Because caps are adjusted only when property sells, wealthy landowners and corporations go to great lengths to ensure that property is not transferred or is transferred as infrequently as possible. Ongoing corporate ownership protects the artificially low value and ensures that other property taxpayers continue to carry a heavier burden. While some residential property has been transferred since Proposition 13, corporate ownership has shielded valuable nonresidential property from being assessed at a newer fair market value. Owners with greater resources are able to keep property values (and thus taxes) artificially low in comparison to their neighbors who buy and sell land and homes due to a lack of resources to buy and hold property indefinitely.
If a young entrepreneur who wants to open a business elects to buy a building, the caps come off and the reassessment is at current market value. Meanwhile, the local competition has been in business for 25 years in the same building. The competitor’s assessment is well below market value, keeping taxes much lower than the new entrepreneur’s. The resulting damage to the free market results in a disincentive to new growth and new investment. In effect, the caps distort the economic picture and stack the deck against the new player.
Another unintended consequence of assessment caps is the disincentive to purchase a larger home as families grow or to downsize during retirement. Given the current state of the housing market, it seems contrary to state interests to place a disincentive on housing purchases.
If the intent is for taxpayers to assume the responsibility for keeping individuals in their home, the solution should target the perceived problem with fewer undesirable effects on the market. For example, a “circuit breaker” program that protects individuals from paying more than a certain percentage of their personal income in property taxes on their primary residence could protect low- and fixed-income Georgians without distorting market values or overly burdening unaffected taxpayers.
We expect our legislators to look out for the problems facing Georgia today, tomorrow and beyond. They can’t do it with a “fix” that produces more problems than solutions and rewards wealthy and financially established Georgians and corporations at the expense of the less fortunate.
Dalton (Georgia) City Councilman Charlie Bethel, director of Human Resources for J&J/Invision, wrote this commentary for the Georgia Public Policy Foundation. The Georgia Public Policy Foundation is an independent think tank that proposes practical, market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the views of the Georgia Public Policy Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.
© Georgia Public Policy Foundation (January 30, 2009). Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.
