House’s property tax ‘fix’ sidesteps the actual problem

REMEMBER THAT 15 percent cap on reassessment that voters approved in 2006? The one that supporters promised would hold down everybody’s property taxes?

That was a lie, of course, and supporters knew it, and we told you so. What the 15 percent cap actually did was shift the tax burden off of the owners of homes in trendy neighborhoods, who would now pay taxes on only a fraction of their homes’ values, and onto the two-thirds of South Carolinians who own homes whose values don’t appreciate that quickly, as well as to business, rental property and car owners: Not only would these non-privileged folks pay a larger percentage of the total tax bill, but since cities and counties would no longer be able to collect taxes on the full value of property, many of them would raise tax rates to make up the difference.

But that tax shift was only part of the problem.

On top of that gross unfairness, the 15 percent cap was a market killer: The law also mandated that newly purchased homes would be taxed at 100 percent of the purchase price, and that higher tax value would set immediately, rather than after the next reassessment. That’s a shock to the system for people whose taxes had been artificially held down for years, which makes them less interested in leaving their current homes; it will become an even bigger shock each year, as the tax cap widens the gap between taxable value and actual value. Already, though, some even say the new law is driving down sales prices, because purchasers are calculating in the cost of a tax bill that will be based, from the start, on the actual value of a home, rather than the lowball “assessed value” we’re used to.

The timing on this law couldn’t have been worse, coinciding with the bust-up of the housing bubble. So barely more than a year after the law took effect, our legislators have realized they made a horrible mistake, and they are preparing to ... start us on a slippery slope towards making matters even worse.

A bill before the House this week would let home purchasers keep paying taxes on the old, artificially low assessment for up to five years. Under different circumstances, that might not be a bad idea: Newly purchased homes will eventually be taxed on the full purchase price, after the next countywide reassessment. But there are two conditions that would have to be met to make this a tolerable change: There should be reason to believe this would be the last special tax break doled out to people on whom the real estate gods had smiled, and it would have to change an otherwise sound policy. Neither applies in this case.

Not only is the underlying law capping reassessments at 15 percent a bad policy, but this change is only the first step. Give property owners this special tax break on new purchases today, and they’ll be back once those higher valuations set, demanding they be allowed to keep their subsidized-by-the-majority tax break. We had the special deal in our old house, they’ll say; we deserve it in our new home too.

The 15 percent cap is indeed adding insult to an already-injured housing market. But the way to fix that is to eliminate the cap and go back to the old system, where everybody paid taxes on the full value of their property (or at least on an equal portion of the value of their property), not to extend this unfair break to the select few.