From different limits to 'land tax,' your fix for the homestead credit
Readers have been sending in ideas for how to change the Homestead Property Tax Credit, replace it or, alternatively, how to change the entire property-tax system. It's been interesting to see, and I didn't want to keep them all to myself.
Some have come in as questions.
"It looks like we have 2 tax credits for homeowners, both designed to protect them against financial shocks from tax spikes: the Homestead Tax Credit, which you've been covering so well, and the Homeowners' Property Tax Credit, which is incapable of being enjoyed by upper income homeowners because it has an income eligibility cut-off," Steve R. wrote during the homestead Q&A this week. "Couldn't we solve the inequities you found and still maintain protections for middle class homeowners (and incentives for them to stay in their city homes) by scrapping the Homestead Tax Credit and strengthening the Homeowners' Property Tax Credit?"
Del. Sandy Rosenberg's suggestion, which we covered earlier in the week, is to keep the homestead program but inject an income element into it so that the annual cap on taxes would vary based on how much a household makes. You could still end up with people in similar homes paying very different amounts of taxes under that model, but those differences would be based on income as well as when the homeowners bought rather than just the latter.
I'll circle back to that proposal -- and reaction to it -- in a bit. (Also: Allegations of class warfare!)
A quick primer on the homestead credit: It sets a limit on how fast the amount of assessed value you're actually taxed on can increase each year. The statewide maximum is 10 percent; many jurisdictions have set their caps lower. Baltimore's limit is 4 percent. Every homeowner is eligible -- it's a tax break for owner-occupiers.
While some reader proposals focus on the homestead program, by itself or as part of an effort to decrease the city's property-tax rate, others say all the attention should be focused on the rate. It's the highest by far in Maryland (though one reader says the difference isn't quite as bad as it appears -- some counties' effective rates are higher than advertised because they add on a lot of extra charges, he says).
Reader David Meltzer writes, "The only message that an advocate of Baltimore should be sending is that Baltimore property taxes must be HALVED in order to cure its problems. Why foster infighting among us?"
Steve Walters, the Loyola University Maryland professor who wrote a paper recommending that the city cut its rate in half, has an idea for protecting certain homeowners from big increases if the homestead program disappears.
"The alternative would be a state- or city-run tax deferral program that would work like reverse mortgages do," Walters writes. "The poor or elderly could apply for a cap on their annual bill (once and for all, to address the administrative issues raised by Mr. Young), but then any unpaid balance would accrue and be collected once the home IS sold and the capital gains realized."
He adds, "This approach would eliminate an illegal and inequitable policy, could fund more broad-based city tax relief, seems administratively manageable (since the tax man already monitors closings to collect transfer and recordation taxes, etc.) and provides long-term residents needed protection against cash flow problems resulting from the city's high rate."
Rick Gilmour from Towson writes, "No longer a citizen of Baltimore City (I moved out to achieve lower county taxes), I nevertheless learned a great deal about homeowners' taxation while living in Baltimore for some 7 years." He offers four steps to get to a lower tax rate "by spreading the cost of city services to all who use them":
1) Convert basic city services, like public safety and trash collection, to fee-based services, just as water and sewer are now fee based.
2) Impose those fees on all property parcels in the city, governmental, not-for-profit, charitable, and religious property owners included. Where an entity (such as the federal government) cannot have those fees "imposed," then merely deny them the services unless they pay.
3) Do not cut any deals with any property owner as regards these fees. No reductions for anybody!
4) Vastly streamline the process by which the city can acquire title to, and then dispose of, real estate parcels that are in arrears on water & sewer charges and the basic service fees. Then use that streamlined process to get properties out of the hands of deadbeat owners.
Bill Marker, an activist from Pigtown, proposes a statewide overhaul of the property-tax system -- rather than the homestead program -- via one uniform rate. He calls it the "One State, One Rate" plan.
"Property taxes for the whole state would go into a single, state-wide fund, presumptively to be distributed to the counties (and Baltimore City) based on their percentage of Maryland’s population," he writes. "Setting the State-wide rate at .8686/$100 would raise the same total amount as currently raised, and reduce Baltimore City’s $2.268 rate by nearly 62%. Like eliminating the homestead tax credit, the city needs State action to establish the One-State, One Rate property tax; fortunately, it would benefit nearly 55% of Marylanders, including the citizens of Baltimore County."
Joshua Vincent, executive director of the Center for the Study of Economics in Philadelphia, suggests an entirely different system -- a "land value tax" rather than a property tax.
"The land tax would remove the penalty for reinvestment in construction by exempting buildings from tax,"writes Vincent, formerly of Locust Point. "It would also remove much of the need for the Homestead Tax Credit."
Tracy Gosson, the former Live Baltimore director who runs her own consulting firm, has a recommendation for how the city could solve the problem of people saying they had no idea they were getting homestead credits on homes that aren't their primary residences: "put a red insert in tax bill w rules & penalties" and "promote lawbreakers they go after 2 show there actually is accountability. lets starts w scofflaw politicians." (Suggestions via Twitter, thus the shorthand.)
Back to Rosenberg's cap-based-on-income proposal:
Reader Martin Kirchhausen thinks it's a "terrible" idea because the property tax is based on property values and "bears no relationship to income."
"I think a much better approach would be to limit any increase in the Homestead credit to a fixed amount or percentage while at the same time not allowing an increase in the credit for any homeowner whose current credit exceeds a set amount or percentage until such time as the amount reaches a predetermined acceptable level," he writes.
Shulamit Gartenhaus of Baltimore also wrote in but to cheer Rosenberg on. She fits the demographic that is generally thought of as prime homestead proponents -- nearing retirement -- but is no fan of how the credit's effects are playing out.
"I always thought I was paying much more taxes than my neighbors," she said in a letter to the editor. "I went online, and saw for myself. Some of my neighbors are getting a whopping 46 percent credit for a house assessed $20,000 more than mine, while I get a measly 24 percent credit. I can't figure it out because I bought my house long before they did. I feel even worse for those of my neighbors who are getting no credit, and I know they can't afford the high taxes. This is certainly not a fair system."
One final income-related thought: Tony Johns from Upperco wrote in to politely suggest that Scott Calvert and I are jumping onto the class-warfare bandwagon because we pointed out that the largest homestead credits are, well, very large and are going to well-do-to owners such as Constellation Energy's Mayo Shattuck.
"The current tax system has already chased the middle class away from the city," he writes. "Do we really want the rich people to leave too?"
Homestead credits for the wealthy wasn't the major thrust of the story so we didn't spend a lot of time on it, or else we might have thought to make clear that the next-door-neighbor disparities in tax bills that you find on rowhome streets are playing out among the mansion set, too.
The homeowner directly across from Shattuck's family, for instance, pays about $3,900 more than they do even though his home is assessed at $700,000 less. That's because his homestead credit shaves about $1,900 off his taxes this year while the Shattucks' credit knocks more than $22,000 off theirs.
Thanks for weighing in, folks! Apologies if you sent me an idea and I didn't include it here -- as you can see, there have been a goodly number and I might have missed one in the scrum. (That's also why there was no Thursday blog post. I've been working on this thing in what passes for my free time since Wednesday evening.)
Thoughts, arguments, other ideas?
Oh, and I will be getting to at least some of the questions that didn't get answered during the homestead Q&A and on Midday with Dan Rodricks, but it looks like that will have to be done next week. So much to do, so little time.