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Higher exemption fails to address real problem of taxes

The mistake being made by those who support an increase in the homestead exemption is that it won’t reduce their overall taxes by much if at all, it will merely change the way in which they pay it.

For years, now-state Sen. John Alario has introduced legislation to raise the level from the nation-high $75,000 to $100,000. A New Orleans real estate agent (who no doubt believes a higher exemption will make housing more attractive, bringing more sales and him more commissions) has upped the ante in an online petition to $170,000. The proposal has an inflation-adjusted mechanism that he says if present when the last change was made in 1982 would have put the level at $160,000 today.

Rightfully, he notes that the state Constitution can foist automatic increases in property taxes when reassessment occurs quadrennially if local taxing bodies vote to roll forward millages to their present levels. The thinking of this proposal is that an increased homestead exemption, which prevents parish governments from taxing on that amount of value, will help mitigate higher taxes forced upon homeowners in that way.

But this is entirely the wrong approach because it addresses exceptions to taxation, not the actual level of taxation itself, an approach that won’t do much to reduce its overall level. Raising the exemption will prompt governments subject to it simply roll forward millages. Worse, it could tempt the state which constitutionally can levy its own property tax but which presently defers to do that. If these things are done, high-valued homeowners could find their overall amounts going up, making the burden already more inequitable. This means many with homes valued between $75,000 and $170,000 may see little or no decrease, while those owners of abodes above $170,000 may see an increase. And the inflation trigger will only goad governments into taking these steps.

One of the great mistaken assumptions concerning the exemption is those who fall under it thinking they don’t pay for the exemption. This is faulty. If, for example, as a response to a higher exemption government prevents rolling back, this becomes a tax increase to businesses and owners of rental property. They will then raise their prices or rents to compensate, passing this cost in part onto those who don’t directly pay property taxes. Because the burden is being shifted, the overall level of taxation, the real problem, does not get addressed.

If you want to address the question of property taxes being too high, the answer lies in the procedure for dealing with reassessment. Currently, it takes a two-thirds vote by a taxing authority to roll forward. If people are upset with an increase in taxes, they should take it out on their elected representatives who did it to them. However, some bodies that have this power have appointed members, so mechanisms should be put in place to control their ability to do this, perhaps by amending the Constitution (as has been tried) to also bring rolling forward to a vote of the people. In addition, people simply could exercise the franchise by voting down new proposals or renewals of property taxes, instead of fiddling with the exemption.

The trick is not to make somebody else pay, which only imperfectly avoids you paying, but to make sure everybody pays less. That comes through mechanisms to promote overall reduction, not redistribution of tax burden as this flawed proposal

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