In a nod to the “affordability” crisis that besets everything from food to housing, conservatives want to raise the homestead exemption on the property tax. But they don’t want to pay for it.
Current proposals call for increases in the sales tax to pay for the loss of revenues from homesteads. Or they cap property tax increases on nonexempt property to annual increases that are guaranteed not to make up the loss of tax revenues from the increase in the exemption on homesteads.
For their part, liberals oppose increases in the sales tax because that tax is even more regressive than the property tax. And they oppose cuts in property tax revenues that aren’t paid for somewhere else.
After all, liberals don’t like to pay property taxes any more than conservatives do, but they value the things those taxes pay for. Any increase in the homestead exemption that is not paid for somewhere else comes right out of local government services or public schools.
Home values have soared since 1937
I make a modest proposal: Increase the homestead exemption — a lot. Enough to totally eliminate the property tax on the average home in Georgia. But make any change in the property tax “revenue neutral” — by increasing the property tax rate that applies to all nonexempt property so that the increase in revenues from the tax on all nonexempt property equals the loss in revenue from homesteads.
This is, in effect, what they did when they adopted the homestead exemption way back in 1937.
That year, the homestead property tax exemption was set at $2,000. (And that amount — together with a whole bunch of minor income- or age-based exemptions that have been added in various counties since then — is the same today as it was in 1937.)
That may not seem like much today, and it isn’t. But in 1937, the median fair market value of a Georgia owner-occupied home (urban and rural-non-farm) was a little less than $1,957. This means that the original homestead exemption was greater than the median home value in the state. That means the median homeowner paid no property taxes on their home. None.
Today, the median fair market value of a home in Georgia is around $350,000. There are many reasons why that is not the amount of our homestead exemption today, but the two most important are:
- (a) the exemption was expressed as a dollar amount, and that amount was never indexed for inflation; and
- (b) our homes today are a whole lot nicer, and a whole lot more expensive to build, even accounting for almost a century of inflation.
The result is that the 1937 homestead exemption now reduces the taxable value of the median home by only 0.57%. One half of one percent. A far cry from 100%.
How to make a regressive tax more progressive
Credit: Arvin Temkar/AJC
Credit: Arvin Temkar/AJC
As originally conceived, the homestead exemption was not a Grover-Norquist-like attempt to starve local government of the resources needed to pay for public services we all value. It was intended, instead, to make the property tax more of a tax on businesses and a personal tax on a luxury — the extent to which a home’s value exceeded the average.
In the process, it made a flat tax — which is a regressive tax — more progressive in effect: by exempting a basic necessity from the tax.
This is something I learned from Michael Thurmond, back when he was the head of the Georgia Division of Family and Children’s Services, and he persuaded Gov. Zell Miller to enact a sales tax exemption on groceries. Like the property tax, the sales tax is a flat tax and therefore hits the poor harder than the rich. Exempting the sales tax on a basic necessity like food makes it more of a tax on luxuries. And to that extent, more progressive.
No necessity is more basic than shelter — it’s right up there with food. And the bigger the homestead exemption, the greater the value of that benefit to median and lower-income homeowners.
The folks who adopted the homestead exemption almost a century ago realized that the property tax ought to be more of a tax on businesses and on luxuries, not a tax on the most basic level of shelter. They were pretty conservative. We’ve allowed that policy to be eroded by inflation to the point that it has been repealed by inattention. We should all want to fix that.
John Barrow represented Georgia’s District 12 as a Democratic congressman in the U.S. House of Representatives from 2005 to 2015.
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