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Thursday, June 3, 2010

Exemptions that are too broad

An article in The Atlanta Journal-Constitution on June 2 - "Tax breaks for seniors: Can counties afford them?" caught my attention. The tax break at issue is not uncommon and exists in California. The exemption is for property taxes and is available to seniors. In California and other states, the assessment that seniors are able to avoid are extra property tax assessments to help fund local schools. One way these voter approved assessments can garner more votes is by including an exemption which allows seniors to apply for an exemption from the new tax so they don't have to pay it (even if they voted for the new tax). A property owner only needs to be a certain age and file the paperwork to get the exemption. Even if the senior is wealthy, he gets the exemption. (Another example in California of an exemption that is too broad is the senior exemption for state income taxes which is based on age rather than income level.)

The Atlanta article notes the high cost to the government of such exemptions: "In Cobb County, where the school system faces a $126.7 million deficit, there have been rumblings of re-evaluating the county’s lenient school tax exemption, which provides a full exemption for all homeowners age 62 and above and costs the county more than $50 million a year. "

Wow! That's a lot of money that would certainly benefit the schools. And, if all taxpayers were subject to the tax equally, the tax could be lower.

Exemptions based solely on age are the wrong way to go. Decades ago, many seniors were in poverty status, but that is not true for most today. So, broadly assuming that all seniors need a tax break is just wrong, and a foolish way to design a tax system.

When exemptions are too broad, several principles of good tax policy are violated, most notably - equity and fairness.

Another issue with the property tax exemption for seniors, when the tax comes into existence via voter approval: Is it right to treat a tax as enacted if some of the people voting for it then file forms to waive application of the tax to themselves? Seems like filing of the application could be viewed as, in effect, really being a "no" vote. In California, that question requires a review of "Prop 218."


1 comment:

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