February 21, 2006

Why Tax Caps Make No Sense

A lot of states are thinking about property tax caps right now. But you don't have to look very hard to find other states whose citizens are scratching their heads at the inequities of their existing caps. The Miami Herald has this from Florida:

Ron Beasley has lived in the same house since 1979, but a spike in property taxes is forcing him to sell. In January 2004, two months before his mother died, he added his name to the title. The tax bill that year? $2,500. When the property was reassessed the following January after her death, however, it doubled. Beasley, 64, appeared to be a new owner. He appealed to a special master in August 2005, after he had already paid his taxes. The special master told him he couldn't do anything about it. The law was clear.
The law in question is Amendment 10, the so-called "Save Our Schools" law that caps the allowable growth in a homeowner's assessed value at 3 percent per year.

The story's subject, Ron Beasley, has just figured out one half of the problem with Amendment 10-style tax caps: they can result in big tax hikes when homes change ownership.

But the story doesn't deal at all with the other, much more important half of the problem: for many people, these "big tax hikes" should have happened years ago. Every year that a tax cap is imposed is a year when your property tax bill doesn't reflect part of your home's true value. The longer the cap applies, the more of a tax break each homeowner gets (assuming your home's value keeps growing). So in that sense, what appears to be the tax system lowering the boom on Ron Beasley is really just the system correcting itself for a policy error that got made over a number of years.

Now, the Herald tells us nothing about whether Beasley and his mom were on a fixed income and unable to afford rising property taxes-- but that's simply because Amendment 10 doesn't care whether you're rich or poor. Amendment-10-style tax caps basically assert that for any homeowner, no matter how wealthy, you simply can't afford to have your home's taxable value go up by more than 3 percent a year. Of course, some folks truly can't afford such a hike, while others wouldn't even notice it.

No question, there are a lot of Ron Beasleys in Florida who are getting needed tax relief from the 3% tax cap there. But there are also a heck of a lot of other Ron Beasleys who would get along just find without this tax cut-- and are getting it anyway.

States seeking to provide property tax relief have better options than this. See ITEP's policy brief on circuit breakers for one. See our brief on tax caps for more on why Florida-style tax caps don't work.


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