YOU MIGHT have been surprised to learn, well after the fact, about the sweet little tax break the Legislature gave home builders this spring. You shouldn't have been. That's the way most tax breaks get done: They're pushed by a small but vocal (or persistent) group, and they're small enough that they generate little resistance and less debate.
At first blush, it's not entirely clear that there's anything wrong with this particular break, which officials estimate will affect only about 500 houses and be worth only about $1.5 million a year. (Actually, at very first blush, it's not at all clear what it does.) Second blush reveals that there are some problems with it, the biggest of which is that it's part of a pattern: The Legislature keeps passing these individual little tax cuts or (much more rarely) tax increases, which serve to grease the squeaky wheel, and it doesn't bother to notice that the rest of the vehicle is falling apart.
The home over-builders' rescue act is particularly notable because it zipped through the Legislature at the very time that legislative leaders were proclaiming and the Legislature was pledging devotion to comprehensive tax reform. To break this cycle of piecemeal tax changes that has made our tax code a muddled mess of special exemptions and exceptions for special people, the cumulative effect of which is to require the state to keep some tax rates twice as high as they would have to be if we didn't have all those loopholes.
H.3018 was borne of one home builder's frustration with having to pay property taxes on two houses he couldn't unload. Charleston developer Chuck Bennett told The Post and Courier that his two unoccupied houses place few demands on local services, and so paying $16,000 a year in property taxes meant "I'm just writing a check for nothing."
Home builders always have had the ear of the Legislature, and with the real estate market tanking and taking those builders down with it, it was even harder than usual for legislators to say no to them this year; so they didn't. Gov. Mark Sanford's veto was barely a speed bump on the way to the bill's passage. Under the law that took effect in June, home builders still must pay taxes on the land, but they get a six-year grace period for taxes on the house; Mr. Bennett expects to pay about $7,000 instead of $16,000 this year.
The idea that unoccupied houses don't place much demand on services is questionable at best: Mr. Sanford noted in his veto message that local governments often build new roads, schools and other infrastructure to accommodate those new homes, and have to pay the bills whether the houses sell or not. And I'm sure Mr. Bennett (or any builder) would expect the police to respond if someone vandalized his house, would expect the fire department to respond if it caught on fire. I'm sure he appreciates local zoning laws that keep a strip club from opening up next door, and code enforcement officers who stop the neighbor from parking a couple of dilapidated vans in the front yard while he's trying to scare up buyers.
But let's pretend for the sake of argument that this is tax break makes good policy sense. It's still a great example of why our Legislature shouldn't make piecemeal tax changes.
To begin with, it sets off a cascade of fairness questions, which inevitably will lead to demands for more piecemeal tax breaks. If a home builder doesn't have to pay taxes on the unoccupied house, why should a commercial builder have to pay taxes on unsold spec buildings? Why should the homeowner who has moved to another town but still can't sell her (empty) home have to pay taxes? What of companies that have gone out of business, leaving their vacant buildings behind?
And if legislators doled out this tax break because the builder shouldn't have to pay taxes for services he isn't receiving, how does that philosophical position - now encoded in statute - affect other tax laws? Should senior citizens be exempt from taxes to pay for school bonds (homeowners already are exempt from taxes for school operations)? And if senior citizens deserve that break, what about those of us who are of the right age to have children in school but don't? What of those who send their kids to private school? (Before private "choice" backers start celebrating that you've caught me making your argument, note that the logical failures of this argument work in reverse: If you shouldn't have to pay taxes to support schools your children don't attend, then I shouldn't have to pay taxes to support schools since I have no children.)
My point isn't to discredit the idea of treating citizens as consumers and taxes as fees for the services each of us decides we want - although that is a very bad idea. My point is to highlight how piecemeal tax changes have unintended and usually unanticipated repercussions that go far beyond the individual changes.
This legislation illustrates another problem with piecemeal tax changes: They're irresistible targets for bobtailing. When this bill got over to the Senate, the Finance Committee took a completely different bill and tacked it onto the end. And so that change, which takes a good bit of digging into the statutes to decipher, got even less debate than the first one.
The bobtailed tax break essentially allows parents who buy college condos to put them in the kids' names and get them taxed as primary residences. This is a huge exemption. Not only is the taxable value of a secondary/vacation residence 50 percent higher than an identical primary residence, but vacation homes are subject to school operating taxes; the tax bill for a secondary residence could easily be three times that of a similar primary residence. That is, unless your dependent 19-year-old is living in that secondary residence.
These are nowhere near the biggest or most egregious special-interest carve-outs in our tax code, or even in our property tax code; they're just the most recent. And unless or until our Legislature actually does what it claims it wants to do, and gets serious about treating our tax code as a whole, these special little exemptions are going to keep dribbling out, and everybody who doesn't have the clout to get their own break will have to pick up a larger and larger portion of the tax bill.