It was the “Summer of Love.”
That’s how we refer to the summer of 2007 in the Montgomery County Auditor’s Office. Some 30,000 property owners in Montgomery County were enrolled in the Homestead Exemption Program that summer when eligibility was extended to any homeowner age 65 or older, regardless of income.
Today, more than 45,000 Montgomery County homeowners benefit from this tax break, reducing their annual property tax bills by an average of $560.
Despite its immense popularity, the expansion of this program has critics. Indeed, some believe the program should be trimmed back or eliminated entirely as part of “redesigning” state government and tackling the state’s budget crisis.
However, the arguments in support of this position are, for the most part, misleading and misplaced.
The advocates for cutting back the Homestead Exemption Program propose doing so through some sort of means-testing. They contend that this break should only be provided to homeowners based upon their ability to pay, giving the impression that wealthy homeowners now benefit from the program.
An analysis of the recipients conveys a considerably different impression.
If property value is any indication of a taxpayer’s ability to pay, then the overwhelming majority of homeowners on the Homestead Exemption Program in Montgomery County appear to be of low to moderate means.
More than 75 percent of the current recipients own homes valued at $150,000 or less. Approximately 65 percent own homes valued at $125,000 or less.
Additionally, more than 4,200 recipients — almost 10 percent of those enrolled in the program in Montgomery County — are permanently and totally disabled. And fewer than 10 percent own homes valued at more than $200,000.
The recipients of the Homestead Exemption are predominately senior citizens of moderate means, living on fixed incomes, many drawing Social Security benefits (with no cost-of-living increase for the past two years), and in all likelihood struggling to maintain their quality of life. They simply cannot afford a huge jump in their annual property tax bills.
Furthermore, the manner in which this tax break is calculated and applied already has an “ability to pay” mechanism built in.
The amount of the annual tax reduction is determined by exempting from taxation the first $25,000 of the homeowner’s property value. This works to apply a cap on the amount of the credit reducing the tax burden for those with lower property values by a higher percentage than those with higher values.
For example, the owner of a $65,000 home in the City of Kettering receives an annual reduction in his or her property tax bill of $580. That amount represents a 37 percent reduction in that homeowner’s total bill.
The owner of a $350,000 home receives the same $580 credit, which amounts to only a 7 percent reduction in his or her tax bill. The cap provides a progressive feature to the program.
When the legislature voted to phase-in a 21 percent across-the-board state income tax cut in 2005, where were the advocates for means testing when that tax break was being considered?
Now there is talk of eventually getting rid of Ohio’s income tax altogether, and legislation has been introduced to eliminate the estate tax. The ability to pay principle would be better applied to deliberations about these tax reduction proposals rather than the Homestead Exemption.
The summer of 2007 may have seemed like the Summer of Love for many Ohioans, but if the Homestead Exemption Program is slashed in the next state budget — forcing senior and disabled homeowners to shoulder more of the local tax burden — this year will likely be remembered as the “Summer of Discontent.”