Tuesday, May 02, 2006

More property tax stuff

Just a quick response to a hypothetical tax portability scenario posted yesterday by HoCoBlog. I only plan on making a few specific points. If you want more background, click here and here.

My neighbors teach in the HoCo school system.

Their house is currently assessed at $245,000 (property tax = $2,485 [Robey plan]) and will phase in to $350,000 in a few years (property tax $3,549). They could easily sell the house for $400,000 (that is conservative - worse houses are going for more than $450,00 in this neighborhood).

Their last kid just graduated from college and is moving to Michigan.

They aren't downsizing, but in case they wanted to downsize here is what it would mean to them.

$1,065 per year. Not much of an incentive, right? If the median income in Howard County is $87,000 then that represents a 2% raise (1.8% in reality - I am rounding up for this exercise). Who doesn't want a 2% raise?
Only, a 2 percent raise is not quite right. First, because local property taxes are deductible from your federal income taxes, you’re not really paying the full price anyway. You’re probably paying, in real terms, about 70 percent of your tax bill, meaning this family would save only about $745 a year, which is equivalent to 0.8 percent of annual median income (and actually, HoCoBlog’s 2 percent is wrong; $1065 is 1.2 percent of $87,000).

A 0.8 percent raise, in my mind, is not a big enough incentive to convince wafflers to move. It certainly doesn’t outweigh the transaction expenses and moving costs (let alone the time and never-ending stress of buying and moving to a new house).

Now, this scenario doesn’t involve the benefits to downsizers – namely, seniors moving to a less-expensive home. When HoCoBlog runs those numbers, he finds that the same couple would save about $1200 a year (factoring in the property tax deduction, it would actually be about $850 a year). Regardless, he has this to say:
Someone might say $100 per month is no big deal. Well $100 per month is a big deal to some people - the same people we want to extend affordable housing to.
Yes, but most of those people – those who need affordable housing – aren’t affected at all by this program. They don’t own houses, which pretty much precludes them from property tax portability.

Finally, he argues that the county would benefit revenue-wise because it is still collecting income taxes on this couple, who presumably would have moved away without a tax portability program. The problem with this argument is that it is completely backwards. Because housing is so expensive in Howard County, many if not most long-time homeowners could not afford to buy the houses they live in now. If we encourage them to stay by making it cheaper to move around, then we’re stuck with their lower incomes, instead of having new, higher-earning families moving in (and providing us more tax revenue).

But also, we have to look at income tax as collected by households – not individuals. In that sense, it doesn’t matter who’s living where – as long as somebody’s living in each house.

I’m certainly not in favor of pushing anyone out of the county. I just don’t think that using income tax revenue as a justification works.

Final finally, much is made about how this plan could help seniors. But what about if they want to actually stay where they are, instead of downsizing or moving to a different part of the county? Why force them to move to take advantage of the tax benefits?

1 comment:

Anonymous said...

All very good points! How can the average Howard County resident make a difference in this process and have a real impact on housing and affordability issues? Think in terms of someone who is not an "insider" who cares, and who may have several hours per week to devote to community service/participation...