Sunday, March 23, 2014

Report to DC Voters: Breaks for Some Seniors Shrink the Tax Base

From my inbox:
Report to DC Voters From: Edward Cowan, March 22, 2014

Breaks for Some Seniors Shrink the Tax Base

Phil Mendelson, chairman of the District Council, voted against a bill to relieve some seniors of having to pay any property tax on their homes because, he said, "taxing needs to be broad based." He also thought the exemption was unduly generous.

Mendelson was referring to a bill sponsored by council member Anita Bonds (At Large), who won her seat in a special election in April 2013 and seeks re-election this year.

The bill, approved by the council on March 4 by a vote of 10-2, would benefit 4,362 home owners, according to the Office of Revenue Analysis (ORA). The bill would reduce revenues by $8.2 million this year and by $34.9 million over five years. There are in total about 193,000 properties in the District.

However, the ORA reported that the bill could not be accommodated within projected budgets and so could not become law unless the mayor or the council offsets the revenue loss (cuts spending by as much, or raises revenue). Mayor Vincent C. Gray, who seeks re-election, has said he will include the bill in his 2015 budget, due April 3.

Grosso Also Opposed
Also voting No was council member David Grosso (At Large). He explained (in an e-mail reply to me) that the bill gave "false hopes," in the absence of money to pay for it. Best case, Grosso said, is that the tax break will become available in September 2015 or March 2016. "For the same reason," a lack of funding, he said, he voted against Gray’s plan to replace all Supercans (which the mayor is doing, despite council disapproval, using an emergency fund).

Mendelson explained why he opposed the bill to an audience of 15 property owners at the Cleveland Park Public Library on March 18. They came clutching their newly received 2015 assessed-value notices to hear the chairman explain how to appeal. Present to assist with technical questions was an assessor, Theresa McKinney. Mendelson underscored that a notice of appeal must be postmarked by April 1.

The Bonds bill is the Senior Citizens Real Property Tax Relief Act. It is Bonds’s principal legislative trophy going into the April 1 Democratic primary. Of the other nine council members who voted for it, five are running for mayor.

To escape all real property taxes under the bill, a home owner must be 70 or older, must have lived in the District for 20 years or more, must have no more than $60,000 of "household adjusted gross income" (the sum of the incomes of all members of the household) and must have less than $12,500 of household income from interest and dividends.

Investment Income Cap Added
Bonds added the investment-income ceiling at Mendelson's request. Her initial press release on March 4 made no mention of that cap and reported a limit on financial assets of $250,000. That was her error, and I unwittingly reported the $250,000 "cap" in a Report to DC Voters of March 10.

In a revised press release backdated to March 4, Bonds included the $12,500 limit on investment income—in parentheses, when in fact it is an operative provision of the bill—and repeated the $250,000 asset cap without acknowledging that it is not in the bill and has no legal standing. This appears to me to be a deliberate attempt to duck admitting she made a mistake.

In an error of my own on January 8, I incorrectly stated that adjusted gross income (AGI) would be calculated under DC tax law and so would omit Social Security benefits. The bill as approved by council specifies that AGI is based on federal tax returns; that total includes Social Security benefits.

Mendelson: 'Not Adequately Means Tested'
In discussing the Bonds bill Tuesday evening, Mendelson said "taxing needs to be broad based," this "is not a very good bill," is "not adequately means tested" and was "poorly written." He explained later that he thought he had an agreement with Bonds to cap eligibility at $50,000 of household income.

"There’s no jurisdiction in the country that does that," Mendelson said of the 100 percent exemption from real-property tax. The District gives a 50 percent exemption to home owners who are 65 or older and have no more than $125,000 of income.

With "broad based," Mendelson was embracing the proposition that when the tax code is riddled with exceptions, rates must be higher to generate the revenue needed to pay for budget expenses. Many tax experts hold that the best hope for reducing rates is broadening the taxable income base, so that a rate cut leads to only modest revenue losses, or none.

The Tax Revision Commission chaired by former mayor Anthony Williams made no recommendations about real property taxes in its report to the council and mayor. It chose to focus its advice for tax relief on the income and estate taxes.

Calculated-Rate Cut Possible for 2015
However, Mendelson said that under the "calculated rate provision" of the real-property section of the DC tax code, he expected that there would be some rate reduction for 2015. That provision specifies that if residential property tax revenues are projected to rise by more than 7 percent, the Chief Financial Officer, Jeffrey DeWitt, shall calculate how much the tax rate should be reduced to hold the rise to 7 percent.

The tax rate now on occupied residential property is $0.85 for each $100 of assessed value. The council could go beyond DeWitt’s calculation and approve a larger reduction. One way of doing that would be to increase the homestead exemption. For owner-occupied homes, the exemption, this year $70,200, reduces taxable value by that much.

Edward Cowan
Editor, Reports to DC Voters

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