Chickens So Predictably Roosting Everywhere

Changes in funding of school operating costs from local property taxes to increases in the sales tax, etc., were touted everywhere in 2006 as the answer to all problems. Some of us, even in the midst of all that hullabaloo said, "Yeah, right."

Now, even the most vociferous proponents of this change are beginning to see its serious consequences. For example, why is CCSD Superintendent Nancy McGinley touring the district explaining a projected $23 million shortfall in the school budget? Because under the new taxing rules, CCSD loses out to districts that are poorer. Duh. Predictable. Years ago California fooled around with property tax caps, and its stellar school system tanked as a result. We're not even stellar.

The P &C has finally recognized the unintended consequences of the new laws. According to Monday's business section,

"There was such a groundswell of support for property tax reform, it was hard for a legislator to get in the way and ask what the long-term effects are going to be," said Otis Rawl, vice president of public policy for the South Carolina Chamber of Commerce.

But the bill's consequences are becoming clear as county reassessment offices start sifting through last year's sales to figure out the new assessments. Charleston County Deputy Assessor Bobby Cale estimates that the prices of properties were about 45 percent higher than the appraised value in late 2003, when his office last gathered assessment data.

What that means is, on average, properties sold in 2007 will have a taxable value 45 percent higher than the previous owners paid.

As a result, the new system discourages the purchase of real estate, and not just for buyers who are new to South Carolina, said Nick Kremydas, president of the South Carolina Association of Realtors. Most people move every seven years, and most homes in South Carolina are sold to people who already live in the state, he noted.

"Fifteen or 20 years into the future of this, it would be a huge deterrent from moving out of a home because it might be more expensive to buy a smaller home," Kremydas said.

Lee Walton over at the blog Charleston Watch has a few good comments on the overall effects of the 2006 legislation:

Growing tax revolt pressure in locations with skyrocketing property values has led to numerous attempts to curb property tax increases by substituting various forms of regressive sales tax reforms, often coupled with homestead property tax and food sales tax exemption provisions. Invariably, such hybrid taxing policies punish the poor, the young and upwardly mobile, businesses, commercial property owners, new homeowners, and trap retirees who’d like to sell their homes. . . .

All sales taxes are regressive – poorer people and those on limited or fixed incomes pay a larger percentage of their income in sales tax than more wealthy residents. As sales taxes are substituted for property taxes, the tax burden shifts further downward to the less affluent. This regressive imbalance is especially evident in localities where some foods, medicines and utilities are subject to increasing state and local sales taxes. A 1999 North Carolina study by Gardner found that an increase in sales taxes burdened the poorest 20% six times more than the wealthiest 1%. . . .

[A current legislative] bill would eliminate property taxes altogether on “homesteads” for homeowners 65 and older and eliminate 28-30% of the current property tax of all 4% and 6% properties – all for just another 1% increase in state sales tax. The likely result of this ill-conceived action would be the demise of the middle-class, a quantum impact upon the already struggling poor, and old-timers trapped in their homes until the end of their days.

Well said, Lee. I hope someone's paying attention.