“Save Our Mansions” exemption fuels inequality

The percentage-based homestead exemption is an unfair tax shift that will disproportionately benefit the wealthiest homeowners.  More effective affordability alternatives should be pursued instead.

hex-pretty-distributions

The “Save our Mansions” homestead exemption reduces taxes based on a percentage of a homestead’s value.  Therefore, a $2,000,000 homestead value would get ten times the tax cut of a $200,000 value.  Because Council does not want to cut services, they will need to raise property tax rates to be able to continue paying for the same level of government programs.  Middle-class and struggling homeowners will get very small cuts and a tax increase in part to finance even bigger cuts for wealthy homeowners. That’s why the typical (i.e. median) homeowner will only see a net reduction of around $20 bucks in the first phase of “Save our Mansions” implementation.

In an era of rising inequality, this is the wrong way to use tax cuts to support affordability. The chart above visualizes the problematic distribution.  Those that need the least help consume a disproportionate amount of the “Save our Mansions” exemption’s benefits, which translates to a higher tax rate increase for the middle class and less targeted help for those that really need it.  The chart above is based on Dylan Tynan’s computations for the fully-implemented 20% exemption:

hex-distribution

If City Council is going to raise property tax rates, there are better options available to provide a big boost to the middle-class and an even bigger boost to truly struggling homeowners and renters.  The City is the source of a broad variety of utility charges and other fees that are both sizable costs to the typical household (see the summary from last year’s budget below) and more flexible in how they can be designed; revenue reduction from these categories would help both renters and homeowners.

bdg_coa_household_bill_15

If Council is going to raise property tax rates, it could substitute that revenue to reduce utility bills or other fees.  Or if it is going to use the revenue from higher rates to solve affordability through new spending, there are more bang-for-the-buck options than tax cuts that disproportionately benefit mansions. Over the next few sessions, the legislature is likely to allow a larger flat value exemption than the City’s presently implemented $5,000 version.  That is also a fairer tool than the percentage-based “Save our Mansions” approach.

Austin’s other local government entities already stealthily benefit the wealthiest homeowners through percentage-based exemptions.

hex-taxing-entities

It is unfortunate that this new Council is rushing to dismantle the City’s relatively progressive and fiscally-sound approach property tax structure in an effort to provide a disproportionate benefit to the homeowners that need the least help.

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