January 24, 2006

South Dakota's Deep Tax Freeze

Starting this year, more elderly South Dakotans will be eligible for the state's Property Tax Freeze program.

2004 legislation indexed the income limits for inflation starting in 2005. This year, the new indexing rule means that the maximum income you can earn and still be eligible for the credit goes up by about $550 for single taxpayers, from $20,440 to $20,990 and $25,550 to $26,240 for married couples. This may not sound like much, but over time it adds up. Check out ITEP's policy brief on indexing tax laws for some dramatic examples of this.
In addition to the income thresholds, there are a few more conditions that apply:
  • Homes worth more than $150,000 are not eligible;
  • You must be 65 or older, or disabled, to be eligible;
  • You must own your home--renters need not apply.

As property tax freeze programs go, this is a pretty good one because it's got income limits. This keeps the cost of the tax freeze down and ensures that South Dakota property tax relief dollars are being targeted to homeowners for whom these taxes are more burdensome. However, like most property tax freezes, it only goes to elderly homeowners. The elderly are not the only ones who are susceptible to unaffordable property taxes--low-income homeowners and renters can be hit equally hard by property tax bills.

Perhaps the most problematic feature of the property tax freeze in general is that it doesn't make any kind of judgment about whether a given retiree's property taxes are "too high" in any given year-- it just says they can't grow anymore. A freeze obviously offers relief to eligible homeowners, but make no distinction between those taxpayers facing truly oppressive property taxes to begin with and those whose property taxes are relatively low. Everyone gets the same "freeze."

A better approach would be for South Dakota lawmakers to scrap the state's property tax freeze program and opt instead for a means-tested circuit breaker that doesn't care when your birthday is or if you own or rent. Property tax relief should be based solely on a household's ability to pay, not age or ownership.


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