Happy New Year to all of the District’s Dime readers!
We spent the last week or so with family and friends, read Brigid Schulte’s excellent story on one young resident of the DC General homeless shelter, and contributed to DC’s sales tax through holiday gift giving.
Now we’re back to work, and an early goal for 2014 is to make sure DC’s tax system is transparent and fair for all residents. Last year ended with the recommendations made by the DC Tax Revision Commission, and we will encourage Mayor Gray and the DC Council to adopt many of them this year. Before we get to those, however, we will address two tax proposals that were not included in these recommendations, yet will be on the DC Council’s legislative agenda on January 7. Today, we focus on the Residential Real Property Tax Relief Act, and tomorrow, we will address Senior Citizen Real Property Tax Relief Act. Both bills run counter to goals of transparency, fairness, and equity.
The Residential Real Property Tax Relief Act of 2013 proposes to reduce property taxes in a way that will give the biggest benefits to owners of the most valuable homes in the District and will create large disparities in tax bills among owners of similarly valued homes. That is why DCFPI opposes the bill, and we urge members of the DC Council to vote against it Tuesday.
It is worth noting that homeowner property taxes are lower in DC than in any surrounding suburban jurisdiction, and that most homeowners pay tax on only three-fourths of what their home is worth. In addition, the District offers substantial property tax help to seniors and to all lower-income homeowners — through a 50 percent break for seniors with incomes below $50,000 and a property tax credit for any homeowner with income below $50,000 who faces high property taxes.
The legislation, before DC Council on Tuesday, proposes to reduce the property assessment cap — which limits the yearly growth in a homeowner’s taxable assessments — from 10 percent to 5 percent. The bill would also eliminate the requirement that every home be taxed on at least 40 percent of its value, regardless of deductions or caps. On the surface, it sounds like a good way to help all District homeowners deal with increasing property taxes, but the reality is that the bill will greatly help owners of high-value homes while offering much less relief to residents with lower-value homes who might be struggling with higher assessments and taxes.
Two-thirds of the tax savings from a 5 percent tax cap would go to homeowners with homes worth $550,000 or more, even though they make up just under a third of all DC homes. The one-third of DC homes worth $250,000 or less would see just 8 percent of the total benefits.
Plus, eliminating the 40 percent assessment floor would further create disparities between homeowners with similarly valued homes. In the end, longtime owners will pay much less than newer owners of houses with similar value. That’s because the District’s large homestead deduction and the property tax assessment cap greatly reduce what longtime homeowners pay in property taxes — while new homeowners pay taxes on almost 100 percent of the total assessed value of their home. Eliminating the requirement that homeowners must pay tax on at least 40 percent of their home’s value would exacerbate these disparities; about a quarter of District homeowners would pay tax on less than 40 percent of their home’s value by 2023.
Instead of creating these inequities, the DC Council should vote against slashing the cap and, instead, prioritize proposals that provide tax relief to low- and-middle income residents. Enacting the tax commission’s proposals would be a great place to start.
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