Eliminating the Homestead Credit - Its Not About Class Warfare

Some are using the complexity the effect eliminating the homestead credit would have on tax bills, to suggest its about class warfare.  This is unfortunate and demeans an important conversation our community should be having on the issue.

For those readers who do not want to don the hip boots and wade through the numbers and increasing variables set out below, the short version is this:

Generally speaking, eliminating the homestead credit will increase the property tax bills of those homeowners living in lower tax areas more than those living in higher tax areas.

Now, get those hip boots out.

Here is the County-wide view, which I have put into graph form.  The data were presented by City Controller, Jeff Spalding, to the Admin & Finance Committee earlier this month.

1) This chart shows the assessed value of homes in Marion County along the bottom axis.  The left axis and the blue bars show the number of homes that fit each assessed value category.  The right axis and red line shows the percentage of the homestead credit by which property tax bills would increase if the homestead credit were eliminated.   Now these are totals for all of Marion County and the percentage is using the aggregated numbers that include those who have hit the tax caps and those who have not. 

Those with lower valued homes will have to pay a higher percentage of the homestead credit they now enjoy, because the tax caps hit higher value homes first. Those who already hit the tax caps, would see little to no change in their tax bill because the tax cap credit would simply increase by the amount now coming from the homestead credit. 

For further complication, please note that the homestead credit is a percentage of the value of the home.  So, those with higher value homes get larger homestead credits.   But, even with that, given the large number of homes valued less than $150,000, the majority of the tax increase will be borne by those homeowners.  Throughout Marion County, tax bills would increase by $4.4 million if the homestead credit were eliminated.  $3.4 million of that total would be from increases in property tax bills of those with homes valued at less than $150,000.

2)  This chart shows the tax increases possible in $10 increments along the bottom axis.  The left axis and blue bars shows the average value of the home that would see each tax increase.  The right axis and red line show the number of homes that would see each tax increase.

About 38% of all homeowners would see little or no tax increase because they already hit the tax caps (first two blue bars).  Those homes valued higher, hit the tax caps first, and few actually will see the $100 tax bill increase.  46,397 homeowners would see a tax increase between $10 and $20, their average home value is $103,227, and together they would pay an additional $2,031,602 if the homestead credit were eliminated.  99 homeowners would see a tax increase greater than $100, their average home value is $368,674, and together they would pay an additional $14,388.

So, eliminating the homestead credit has little to do with rich folks paying their due.  The tax increases will tend to hit those with lower value homes.  If you live in a higher tax area, then you'd escape a tax increase for a home value lower than someone living in a lower tax area.   2012 tax rates vary from 4.88 in Beech Grove to 1.95 in parts of Washington Township, so you can see the high level of variability involved in which homeowners would get hit with tax increases if the homestead credit were eliminated.  But, the best generalization is that those in lower property tax areas will see a greater increase in their property tax bills if the homestead credit is eliminated.

There are a goodly number of the variables involved in who would see a tax increase, not to mention the additional variables involved in how much each school district gets hit with circuit breaker penalties if the homestead credit is eliminated.  It is easy to want someone to give us simplified cause and effect summaries.  Unfortunately, the homestead credit elimination isn't easily captured in a simple statement.  There are many variables, many pluses (depending upon where you live and what the value of your home is) and many negatives (depending upon which taxing unit gets income tax revenues in addition to property tax revenues - and how much of each).

The Councillors are right to be cautious.  Let's face it, even the Controller labels it a tax increase.  What it is not is class warfare.