Bacon's Rebellion

Kaine Tax Relief Plan: One Great Idea, and One Bone-Headed One

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James A. Bacon
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Del. Brian Moran, D-Fairfax, runs a column in the Richmond Times-Dispatch today in praise of Tim Kaine’s real estate tax relief plan. There are two main planks, one of which makes a good deal of sense, the other of which makes no sense whatsoever.

The foolish idea would allow local governments to “exempt 20 percent of a family’s home or arm from real-estate property tax.” Excuse me, what’s the difference between exempting 20 percent of the value of a person’s home from the tax and… cutting the tax rate by 20 percent? If localities want to provide tax relief on the personal property tax, they don’t have to wait for the General Assembly to pass enabling legislation, they can do it right now!

Can someone please explain to me how such a homestead exemption would change anything?

The good idea is one that Kaine brings from Richmond, where it has worked wonders in urban redevelopment: exempting renovations and rehabilitation on old properties for 15 years. This law has substance. By lowering the cost of renovation/rehabilitation, it has encouraged significant investment in older structures. Not only will the renovated property yield higher revenues in 15 years, but it has an immediate impact by improving the desirability of the neighborhood and supporting property values of houses that haven’t been renovated. The city of Richmond has seen an untold number of vacant warehouses, old industrial buildings and large residences renovated, bringing more affluent residents back into the city.

By all means, the General Assembly should pass legislating enabling any locality in Virginia to adopt such an ordinance.

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  1. Paul Avatar
    Paul

    Amen on the revovation idea. This would far outpace the federal historic tax credit (a 10-20% credit for buildings on the national register or in historic districts).

    We should definitely encourage renovation.

  2. Ray Hyde Avatar
    Ray Hyde

    We started off with returnable bottle laws. I always said we were recycling the wrong things: we should start with the most expensive stuff, like houses. This plan partially realizes that goal.

    If we had a deposit on cars, and manufacturers knew they would get them back some day, they would build them so they can be repaired. Same for major appliances, etc.

    I see several problems with the plan. There are many other impediments to restoration, such as lead paint, lead pipes, and asbestos. Restoration credit needs to have some means of avoiding liability for problems in these areas.

    Renovation won’t lead to higher revenue by itself. That has to come from income, not from the structure. Improving the desirability of the neighborhood will lead to higher incomes in a secondary way and thus to higher revenue.

    It definitely won’t lead to higher revenue from the structure (real estate tax) anytime soon if the renovation is exempt for fifteen years.

    Given the wear and tear some city residents generate, it might have to be renovateed every fifteen years, in which case it becomes effectively tax exempt.

    If the plan brings the affluent back to the city, where will the existing residents go? If they can’t afford new structures, will we have to provide them? Are they going up in the suburbs, or next to the renovated old structures for the affluent?

    If that happens, maybe providing inducements for the affluent to live in old-crappy buildings, ill-suited to present lifesyles, isn’t such a hot idea especially when they realize they will be living next to the displaced poor in new subsidised housing.

    Somewhere there is a community blog where urban renewal pioneers tell their stories and beefs. It is instructive reading. If I can find the reference, I’ll post it.

    The property tax exemption is kind of bone-headed, except if it is legislated localities will have no choice but comply. But since they have no other source of revenue, they will have to raise the rate to compensate….

    We constantly complain that Americans don’t save enough, and then we tax what they own. In the case of housing it is their biggest source of saving. You could put the equivalent amount of money in tax-free bonds and pay no tax. Of course you would have to rent, and your landlord pays property tax.

    Instead of exempting 20%, which is bone-headed, they should exempt 100%, which is not, and then go after income and sales. Even if the income tax is higher, whats left will go farther if you are not then taxed on what you save and own.

  3. Paul Avatar
    Paul

    Urban renewal was boneheaded, but it mostly involved blowing things up, running highways through cities, and hoping that developers would magically appear.

    The new (and correct) trend it revitalization through renovation of existing structures.

    Take a look at the rowhouses in DC to see what revitalization tax credits can do for cities. it’s amazing.

  4. Will Vehrs Avatar
    Will Vehrs

    Jim, localities could cut the rate by 20%, but wouldn’t that have to be across the board? Does the Kaine proposal allow localities to pick and choose who gets a 20% exemption?

  5. Jim Bacon Avatar
    Jim Bacon

    I’m not certain, Will, but my impression is that the Kaine legislation would exempt the first 20 percent of property value, whatever that means. I interpret that to mean that homeowners would get taxed on onl 80 percent of the assessed value of their property. I’m willing to stand corrected.

  6. Steven Avatar
    Steven

    Hmm … I thought it was pick and choose the exemption rates — but who knows for sure once the VA bureaucrats and lobbyist incorporate the idea into their legislative packages.

    After all, it’s not going to benefit the working class — without a tax relief clause for corporations and the hoity-toity of the Commonwealth.

    In addition, Tim ‘the choirboy’ Kaine will need major damage control if Viola Baskerville wins the Lt. Gov. primary — She’s on record for opposing the 20-percent rate reduction. But I’m not sure Viola said it was a bone-headed idea.

    That will not look good on the Kaine-Baskerville-Deeds campaign brochures.

    ~ the blue dog

  7. Will Vehrs Avatar
    Will Vehrs

    Blueish Dog, according one of Sic Semper Tyrannis’ “liberal” correspondents in attendance at the Shad Planking, Viola might be toasted fish sticks. Chap is the man!

  8. Steven Avatar
    Steven

    Shad Sinking what? You’re talking about 7000 people in the Commonwealth who might actually know about the annual fish fry …

    I seriously doubt the rest of Virginia cares who had the most signs, buttons and the best beer boy!

    In the end, Viola Baskerville will carry Richmond and win the Democratic primary. It’s failsafe.

    Next question?

    ~ the blue dog

  9. Paul Avatar
    Paul

    Steve – usually I’d agree with you on this, but it seems that Leslie Byrne has entered the equation.

    From my talks with liberal democrats, they LOVE Byrne. They yearn to pointlessly throw their vote away on her candidacy (rather than throwing it away on Baskerville’s).

    What’s my point? Well, the “let’s throw our vote away” crowd in the Democratic party is split between Byrne and Baskerville. And that opens things up for Chap!

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