Tax cap to give wealthy a break

AIKEN - Voters saw "tax cap" and went for it, approving a referendum last year that promised a break on property taxes.

Only now, as county officials wrangle with next year's budget, are the unintended consequences becoming painfully clear: Only the richer residents will truly benefit from the tax cap.

The people with homes worth hundreds of thousands of dollars will save significantly on their property taxes, county officials say.

But the people who live in moderate homes could end up paying more than they would have had the cap never passed.

That means they'll likely end up bearing more of the tax burden.

"When you see something on the ballot that says we're going to cap your taxes, you're going to vote for it," said County Administrator Clay Killian, who's trying to finalize a budget complicated by the referendum.

Because of that vote last year, Mr. Killian doesn't know yet whether property taxes will need to be raised to cover county expenses.

Vicki Simons, of the Aiken County Taxpayers Association, said voters didn't understand what they were approving.

She said it's actually a "reverse tax" and likened its effects to a water bed.

"When you press down on one side, somewhere else has to go up," she said.

Overwhelmingly approved by voters last fall, the referendum made it so taxable property values cannot go up more than 15 percent.

Efforts to pass the cap began because some South Carolina homeowners were receiving sticker shock every five years as the value of their homes - and their tax bills - drastically increased. Some homeowners were being virtually taxed out of homes that had been in their families for generations.

County officials worried last year that the referendum might backfire, and now it's stalled efforts to set the 2007-08 budget.

Property taxes make up nearly half of the general fund, which pays for services provided by the sheriff's office and EMS, among other things.

County assessor Mike Reed said that before the cap, property reassessments every five years would redistribute the tax burden equitably - meaning that if your property value dropped or stayed the same, generally so did your taxes.

If your home's value increased significantly, your tax bill went up accordingly. That allowed poorer homeowners' tax bills to drop while still giving the county the same amount of money to operate its budget.

The cap changes that.

Mr. Reed offered an exaggerated example to illustrate the impact of the cap:

Under the old taxing system, a $35,000 home that doesn't increase in value would pay $99 in taxes. If the tax cap hadn't been approved, that homeowner's taxes would actually drop to $77 this year.

But because of the cap, it will only drop to $86.

By comparison, a home purchased for $230,000 in 2005 would have a tax bill of $653.

But when the value of the home skyrockets to $1.5 million, the bill doesn't do the same. Instead of paying $3,284, that homeowner's property taxes stay the same.

In a nutshell, Mr. Reed said, taxes that should drop don't, and those that should go up don't.

"That thousands of dollars is going to be picked up by the property owners whose value don't go up that much," Mr. Reed said.

Hurting the poorer homeowners isn't the only unintended consequence of the tax cap.

Mr. Reed said some residents who buy a home will receive a shock when they get their first property tax bill, because it might not be what the previous owner was paying.

The tax cap applies only to current owners, Mr. Reed said. Someone who owns a house worth $300,000 could be paying taxes on half that because of the cap. But if they sell the home for what it's actually worth, the new owners must pay taxes based on what the house is actually worth - and it's at that point where their taxes are capped.

That could be double or triple the taxes, based on Mr. Reed's example.

The implications are far-reaching, opponents say.

"We will not feel the effect of this for some time," Ms. Simons predicted.

Reach Sandi Martin at (803) 648-1395, ext. 111, or sandi.martin@augustachroni