November 16, 2005
Tax proposals aid wealthy most
Analysis: Owners of modest homes would benefit less
BY DAVID SLADE AND JOHN FRANK
The Post and Courier
The leading plans for property tax reform in South Carolina would give the
lion's share of the benefits to those with pricey real estate, while owners of
the least-expensive homes could wind up paying more tax instead of less, an
analysis by The Post and Courier found.
The state House and Senate are considering different proposals aimed at
reducing property taxes, both of which would be funded by raising the state
sales tax 40 percent, to 7 cents on the dollar.
While previous state efforts to reduce the real estate tax burden have been
directed toward the elderly and disabled, and to homeowners with lower-priced
residences, the plans under review would cut real estate taxes without regard to
property value or the owner's age or income.
That might sound evenhanded, but here's how it would work:
Under the House plan, for every dollar in tax relief that goes to the owner
of a $100,000 home in Charleston, the owner of a $1 million home would get $21.
"The tax relief is determined by how much you paid in taxes," said House
Speaker Bobby Harrell, R-Charleston. "There are folks who paid more in taxes, so
they get more in relief."
The House plan would eliminate roughly 86 percent of the school, municipal
and county real estate tax on owner-occupied properties, leaving only the tax
that funds bond repayment.
Under the Senate plan, the difference in dollar savings between the $1
million home and the $100,000 home is nearly 46 to 1.
The Senate plan would eliminate the property tax that funds school
operations, on owner- occupied properties, second homes, renter-occupied
properties, cars and boats. Like the House plan, an increase in the sales tax
would be coupled with a sales tax exemption for certain groceries.
"We have to make sure our plan is equitable and fair," said Sen. Glenn
McConnell, a Charleston Republican and co-chairman of the Senate property tax
'The squeaky wheel'
Under both proposals, owners of less-expensive homes would get the least
benefit because their real estate taxes already have been reduced by existing
The state's current property tax relief program substantially reduces school
taxes on the first $100,000 of a home's value. Counties with the local option
sales tax also reduce municipal and county taxes on the same amount. And elderly
and disabled people pay no property tax on the first $50,000 of their home's
value under the homestead exemption program.
Half the owner-occupied, single-family homes in South Carolina were valued at
$114,000 or less in 2004, the Census Bureau estimated.
"It doesn't surprise me that the beneficiaries are going to be wealthy
people," said Rep. Gilda Cobb-Hunter, of Orangeburg, ranking Democrat on the
House property tax committee. "The clamor has come from that group of folks, and
that seems to be who we are interested in helping."
The push for tax reform is being led by lawmakers from the Charleston area,
where property values have been rising sharply and many tax bills soared because
of reassessments this year and school district tax increases. In this year's
reassessment, more than 3,500 homes in Charleston County were valued at $1
million or more, and the average property value jumped by 51 percent.
"It's a case of 'the squeaky wheel gets the grease,' and the ones squeaking
the loudest are the people in taxpayer associations and along the coast,"
Cobb-Hunter said. "The case needs to be made for equity and targeted tax
Opponents of the plans question raising the sales tax for everyone, including
those who don't pay real estate taxes, to fund reductions for property owners,
amounting in some cases to a five-figure tax cut.
Emerson Read, a founder of the Charleston-based Property Tax Elimination
Committee, would see his $13,400 tax bill cut at least in half under the Senate
plan, and reduced by at least $11,500 under the House plan.
"I don't call it a tax break because we shouldn't have had to pay them in the
first place," said Read, whose King Street home in Charleston was valued at $1.6
million during Charleston County's reassessment. Read, 80, bought the house in
1965 for $45,000.
"It's criminal," he said. "They're taxing people out of their homes."
Beach houses and boats
The Senate plan offers less of a real estate tax break for homeowners than
the House plan, in order to cut property taxes on second homes, apartments, cars
and boats roughly in half.
The inclusion of relief for second homes would help wealthy people with
houses at the beach, but it also would help people such as Walter Missel of
His house is worth around $75,000, and with a homestead exemption he has a
very modest tax bill, but the taxes on a second property he bought years ago
near Edisto have skyrocketed.
"I've got a place I built myself, just to go fishing," he said. "A lot of it
was scrap lumber, and there's no water or sewer. They say it's worth $280,000."
Under the Senate plan, the taxes on Missel's fishing property would be cut by
about 50 percent. The House plan covers only primary residences.
Second homes and apartments in South Carolina are assessed at a higher rate
than owner-occupied homes, and they don't benefit from existing tax relief
programs. A tax cut on those properties would be worth considerably more than
one on owner-occupied homes of the same value.
"We don't understand why it's an issue to reduce the taxes on second homes,"
said Marika Kary, chairwoman of the Mayor's Council on Homelessness and
Affordable Housing, in Charleston. "We want them to somehow identify help for
people in affordable properties, and elderly people who can't afford (real
Pay at the register
Whereas the tax relief in the House and Senate plans is skewed toward those
with pricey property, the $1.2 billion sales tax increase that would finance the
plan would disproportionately affect those with lower incomes. Internal Revenue
Service estimates show that those with low incomes spend larger percentages of
their income on items subject to sales tax.
The 2-cent sales tax increase would cost the typical family of three about
$315, based on Census data and IRS estimates for South Carolina. The House and
Senate plans each call for exempting certain groceries from the sales tax, which
would offset some of the increase.
The average family of three spends slightly less than $3,700 annually on food
to be consumed at home, according to the Census Bureau. If all of that food were
exempt from the sales tax, the net increase in sales tax for that family would
be about $130. Exemptions for groceries typically have limitations, however, and
groceries purchased with food stamps already are exempt from sales tax.
McConnell said the grocery exemption, and the Senate's proposed reduction in
the car tax, increase the fairness of the property tax reform plan for those
with lower incomes.
"When you factor in the car tax and the food tax, it really starts to level
out," McConnell said.
Supporters of a higher sales tax point out that tourists would help fund
property tax relief. But others who could face higher sales tax without
benefiting from real estate tax relief include South Carolinians in tax-exempt
government housing and elderly or disabled people with homes valued at $50,000
or less. Renters also would pay more, though they potentially could share in the
tax savings on apartments under the Senate plan.
Still, the simplicity of the sales tax has broad appeal.
Josephine Hawkins, 70, lives with her husband in West Ashley home that
Charleston County valued at $74,600. They would save little in real estate tax
under either legislative reform plan - less than $50 - but Hawkins said she
might prefer to pay the sales tax.
"Maybe it would be a help, because when you pay a few pennies on clothes and
things, it doesn't hit you in the face the way the property tax bill does,"
The House and Senate tax-reform plans still are in the draft phase and
haven't received final approval from the respective property tax committees.
Both committees meet again Wednesday.
Lawmakers hope to write formal legislation in the next few weeks and continue
meeting to hammer out final details before the Legislature returns to Columbia