I mentioned in an earlier post that I was going to roll out my legislative agenda. This is the third in the series.
No one doubts that the rapid increases in real estate assessments that we have experienced over the last few years has come to an end. Nevertheless, the need for real estate tax relief still exists. A number of bills have already been introduced (HB6, HB11, HB74, HB102, HJ3, HJ4, HJ19, SB9, SB10, SJ6) to address the problem.
The constitutional amendment to exempt up to 20% of the assessed value of your home passed the legislature last year. In order for it to become law, it must pass the legislature again this session (HJ3, SJ6), after which it will be placed on the ballot in November 2008 for voter consideration (HB6, SB9). If it makes it to the ballot, I expect that it will pass overwhelmingly. The challenge then will be to get the localities to implement it.
Legislative approval of the so-called “homestead exemption” amendment is by no means assured, however.
I’m already hearing that the business community is gearing up to defeat these bill. Their reason for doing so is that they are afraid that the amendment will create a de facto bifurcated rate, i.e., two separate rates, one for homeowners and another for business owners. Business owners have always opposed a bifurcated rate.
Those who have followed the real estate assessments and rates over the years are well aware that the rapid assessment increases affected homeowners the most, while business owners experienced modest increases. (See my prior writings on the topic here.) When the tax rates were cut, a lot of business owners actually saw their real estate tax bills reduced, while homeowners continued to see increases, albeit at a smaller rate. During discussions on the amendment last year, Del. John Cosgrove (R-Chesapeake) raised this very point when SJ354 came before a subcommittee of the House Privileges and Elections Committee.
With residential real estate values flat (or, in some areas, declining), this amendment would permit localities to raise the rate, provide an exemption for homeowners, and essentially shift the tax burden to businesses, all the while maintaining or even increasing, revenues. As I mentioned in an earlier post, Norfolk’s real estate rate got pretty high ($1.40 per $100 of assessed value) during a relatively long period of modest assessment increases. So I understand why the businesses would be against the proposal.
That doesn’t change the facts, though, that they got significant windfalls over the past few years – windfalls that came from the pockets of homeowners. If the homestead exemption had been in effect, those windfalls wouldn’t have been nearly as large. And the localities wouldn’t have been so reluctant to implement rate reductions.
As long as residential real estate and commercial real estate appreciate at different rates, it seems to me that a bifurcated rate is appropriate. Since the legislature is unwilling to give us that, the homestead exemption is the best chance we have.
Because constitutional amendments require passage by the legislature in two separate sessions separated by an election, and then voter approval, business will essentially have two more opportunities to kill this. We shouldn’t let them. Localities have so few tools in their toolbox, thanks to the Dillon Rule, that they need this one.
VIVIAN J. PAIGE | All Politics is Local 
Does this agenda mean you would like to have the chance to implement them one day through the proper channels??
I’m not sure what your question is. I mentioned my reasons for laying out my agenda in this post.
Paving the road to hell again, I see.
We had homestead exemptions in Louisiana, and they are a disaster.
What happens is that once any segment of the population has favorable tax treatment, whether that segment is the poor, elderly, homeowners, or left handed albino lesbian nuns, that favored group loses interest in the overall rate of taxation and puts all of its energy into protecting and expanding their favorable treatment.
The result with a homestead exemption is that the property tax rates will go up as the base shrinks, shifting the burden to non-homestead properties like businesses and rentals. These tax increases become expenses to the business, and drive prices up. the only difference is that now the higher taxes have been made invisible.
Taxes should be equal, universal, and visible so that people can see the true cost of government and decide how much they can afford.
I don’t have any clue as to how the homestead exemption works in LA, whether the localities operate under the strain of the Dillion Rule, or what. Homestead exemptions are implemented different ways in different states.
Passage of this amendment doesn’t in any way guarantee ~ or even require ~ localities to implement it. It is just one step in a long process. Homeowners share of the tax burden has been unfair, businesses have benefited. This helps to restore the balance.
Oddly enough, homestead exemptions will divert taxes onto the poor. As Doc Tabor points out, the burden will shift to businesses and rentals. Most of the purchases of the poor are essentials, and cannot be greatly reduced. Most rentals (both houses and apartments) are rented by the poor. The owners of those properties will not take the hit, because if they had to take the hit, they would sell out and invest in something with a better return. (Back to Econ 101 and Prof. Adam Smith.)
Vivian,
The ideal tax rate for business, if you truly wish to help the poor, is zero.
Taxing business only hides the taxes on individuals, it does not lower them a bit. No business has a money tree from which to pluck its tax dollars, nor will those dollars come from the owners of the business, 100% of any tax placed on business is paid by the customers of that business. Taxes on business, including those on self employed individuals, are really nothing more than hidden sales taxes.
Since the poor and middle classes spend more of their income, rather than saving it, business taxes are 100% regressive(unless you only tax businesses that the poor do not patronize, like caviar importers.) The futility of taxing business as a method of sparing the poor has been known at least since Adam Smith published THE WEALTH OF NATIONS in 1776.
It does not matter how good your intentions may be, if your understanding of economics is faulty, you will get unintended results. If you wish to get good results from your good intentions, I recommend Thomas Sowell’s BASIC ECONOMICS as Christmas reading.
I understand economics quite well, thank you. I do have an MBA, after all.
The difference between y’all and me is that I also understand reality. Tell me – which local business reduced it prices because of the windfall they received from the real estate tax rate reduction?
The system we have is the system we have. And we have to work within that system. Business taxes aren’t going to zero – not in my lifetime or the next.
Well, being a renter for my office space, I didn’t see any real estate reduction. My business equipment is still assessed at new value even though it is 7 years old, so those taxes haven’t gone down either, and my BPOL taxes just go up every year.
Altogether, Norfolk’s taxes amount to a sales tax on the dental services I provide of about 2%, which, of course, my patient’s pay without knowing it.
But if I ever get any actual tax reduction, I will certainly pass it along to gain competitive advantage over other dentists, just as I pass along tax increases.
Aside from which, I know a lot of MBA’s who understand finance but have no clue about economics, and don’t understand that there is a difference. 🙂
If you understand the concealed regressive nature of business taxes, why are you advocating them?
I know you are sincere in your concern for the poor and working poor, so why push for something that shifts the tax burden their way?