Trickery Being Pushed As A Treat

Divide and conquer.

That seems to be the effect - perhaps unintentional - of a recent property tax proposal approved by the Washington state Senate. The measure would give homeowners a $200 credit on their property taxes but the credit would not apply to commercial properties. Business owners would be left out. The proposal pits homeowners against employers and in the meantime, nobody notices that legislators haven’t cut tax rates at all.

Supporters claim that it’s only fair that a property tax break be targeted to homeowners, because businesses have received the lion’s share of the tax breaks the last several years. But they fail to mention that many of the business tax incentives approved since 1993 were simply meant to offset the more than $1 billion in business tax increases passed in 1993. And according to a recent report by the Washington Research Council, the passage of car tab Initiative 695 means that individuals in Washington have actually received more tax relief than business.

So, if that’s the case, why all the finger-pointing? The answer lies in election-year politics. Shaken by the taxpayer revolt behind Initiative 695, some legislators are eagerly trying to show voters that they got the message.

But the $200 tax credit is not what it seems. For one thing, it is not a tax cut - it is a tax credit. It does not lower the state property tax levy. True, the credit is indexed to keep pace with personal income growth, a feature supporters say will ensure that the credit grows over time. But your property taxes will likely increase much faster than the credit, meaning that in just a few years, the tax credit will be consumed by tax increases.

Consider the example of a home with an assessed value of $200,000. Assuming that the home’s assessed value grows at a conservative rate, over a five-year period the $200 state property tax credit would increase by $50 while state property taxes increase $800. Some tax break!

Are legislators aware of this? I believe so, and in fact, they’re counting on it. They’re depending on the disparity to pay for the tax credit. In essence, they’ve set it up so homeowners will pay for their own property tax relief.

Employers don’t like the proposal for three major reasons:

1. It is not legitimate tax relief.

2. It treats homeowners and business owners differently, in defiance of the state Constitution. In fact, the proposal could not become law unless voters amend the state Constitution to eliminate its requirement for fair and equitable taxation.

3. It allows legislators to start discriminating against certain homeowners. In what way? The proposal allows legislators to increase the tax credit but does not require that the increase be applied equally to all homeowners. That leaves the door open for lawmakers to start treating different homeowners differently - depending on the value of their homes.

It is that slippery slope that most troubles employers. Once legislators get the green light to discriminate against certain taxpayers, where does it stop?

In some states, that slippery slope has resulted in a split-roll property tax system, which allows lawmakers to tax homeowners and businesses at different rates. But split property tax rolls rarely result in lower property taxes for homeowners. In fact, a 1999 study by the Minnesota Taxpayers Association found that the average tax bill for homeowners in split-roll states is about the same as in other states. The only difference is that business taxes skyrocketed.

A split roll would hurt everyone in Washington state. Washington’s fair property tax system is one of the state’s most attractive features when employers are deciding where to expand or relocate. If that fair system is destroyed, employers - and the jobs they create - will go elsewhere. In fact, a Washington Research Council study found that, from 1982 to 1997, states with a split property tax roll had 10 percent less economic growth than states with uniform taxation.

Voters should not be fooled by an election-year quick-fix property tax gambit that does little more than pit business owners against homeowners. Instead, voters should demand that legislators do the hard work necessary to make government leaner and more efficient. That would save money, preserve critical government services and allow lawmakers to pass real, constitutional property tax relief that is fair to everyone.

The Association of Washington Business has a long and proud tradition of fighting for lower taxes and more efficient government. Although we opposed I-695 as the wrong vehicle, we have always supported its goal: to compel government to change the way it operates.

We vow to keep our eye on that goal. We hope voters will do the same.