In the search for solutions to our area’s housing affordability problem, a tax policy we’ve had some experience with should not be overlooked. A number of states including Washington have tax relief programs for seniors and the disabled, while others have expanded these programs to encompass low-income homeowners of all ages and also low-income renters.
Adapting the tax relief program to help low-income homeowners of all ages could be one small way to help as we look for ways to expand affordable housing opportunities. Saving perhaps a couple thousand dollars a year could ease mortgage payments or rents enough for more people to live more comfortably.
In 1965 the Washington Legislature passed a constitutional amendment granting retired citizens, and others retired due to disability, relief from property taxes on their residential property. The following year voters overwhelmingly approved Amendment 47 authorizing the legislature to grant exemptions as appropriate.
The Legislature at first provided a flat $50 exemption from all property taxes for people with incomes below $3,000. But it soon moved to exemptions based on assessed value as well as household income. Over the years, the income and assessed value limits have been regularly adjusted to reflect increased costs of living. Legislation also allowed seniors to defer property tax payments while paying interest. And since 1995, under the program, housing valuations have been frozen for property tax purposes.
The senior citizens exemption is an example of a category of low-income tax relief colloquially known as a property tax circuit breaker. The Institute for Taxation and Economic Policy has analyzed the advantages of circuit breakers compared to other more general property tax relief programs such as a homestead exemption. It identified the ability to target specific categories of low-income households as the most important benefit. And these include low-income renters as well as owners.
Several other studies of state circuit breaker programs all point to benefits for low-income households. The National Conference of State Legislatures in 2002 reviewed circuit breaker programs in the context of the range of available property relief policies. A 2009 report by the Lincoln institute for Land Policy emphasized the contribution that circuit breakers make to tax equity and recommended how policy can be designed to achieve the best outcome.
In a 2007 survey, the Center on Budget and Policy Priorities found that 10 states (including the District of Columbia) had circuit breakers available to both low-income homeowners and renters. One state, Oregon, has an assistance program for renters but limits eligibility to ages 58 and older.
All of the state programs vary widely in design. But they have a common objective: to reduce property taxes that comprise a large share of household income.
In Washington, to be eligible for tax relief, a home owner must be 61 years old or retired due to disability. The program was expanded in 2005 to include disabled veterans and surviving domestic partners.
Income and assessed value criteria were last adjusted in 2004. To qualify for relief, household disposable income must be below specific thresholds. If income is $35,000 or less, recipients receive an exemption from all excess property tax levies and the assessed value of their residence is frozen from the year of initial application. Households with incomes between $25,001 and $30,000 are exempt from all regular levies on the greater of $50,000 or 35 percent of the value, but only up to $70,000. And for incomes of $25,000 or less, the exemption from regular levies is the greater of $60,000 or 60 percent of value.
In 2014, 107,000 retired Washington homeowners received tax relief totally $155 million, an average of about $1,400 per household. The average varied across the state from a high of $2,282 in Snohomish County to a low of $609 in Garfield County. King County’s average was $2,110.
The senior exemption is a popular program that has received little criticism over the past 50 years. One measure of its popularity is the Joint Legislative Audit and Review Committee’s 10-year tax preference review schedule. The senior exemption is due for review – but not until the year 2022.
The House Finance Committee did, however, this year completed a comprehensive study of the evolution of the exemption and of the demographics of current users. The study was presented at the committee’s Jan. 23 meeting, at which testimony was heard on three bills proposing to adjust income and assessed value limits.
The study did not address opportunities to expand program coverage to low-income householders regardless of age or to low-income renters.
After receiving a request through a lawmaker, the Department of Revenue recently estimated the fiscal impact of additional owner households that would qualify to participate in an expanded program if age were not an eligibility criterion (and income, assessed value and all other features of the program remained unchanged). The department estimated that for taxes due in 2016, the potential impact would be $129 million. This compares closely to the $123 million impact of taxes due in 2014 of households enrolled in the current program. Of course, eligibility for the program is not the same as enrollment, and the actual tax relief is likely to be somewhat less.
The department was not asked to analyze the impact of adding low-income renters. This would be helpful in order to assess the full potential of applying circuit breakers to the housing affordability problem. It would require an assumption regarding the amount of rent that represents property tax paid by the owner and passed through to the renter.
An amendment to the constitution would be necessary to expand the property tax relief to all low-income homeowners and renters. So supporters would need to lobby the Legislature to enact a measure that will gain the support of two-thirds of each house. And then they would need to mount a ballot measure campaign.
Tax policy alone won’t solve the housing affordability problem, but it will ease the cost of housing for low-income segments of the population. And, as an important side benefit, it will reduce somewhat the extreme regressivity of our state tax system.