Monday, November 8, 2010

Senior Taxes: Pay Now Or Pay Later

Richardson City Council member Amir Omar keeps trying to sell his senior tax freeze. He ran on the idea when he won election to the council in 2009. He lobbied his fellow council members in a July council work session. This week, he was back. There was nothing new to change the analysis I offered in July.

After the jump, rehashing old arguments.

Under the current scenario (a senior tax exemption), seniors turning 65 get an immediate tax break, but taxes might go up later due to property appreciation or tax rate increases. Under Omar's proposal (the exemption is replaced by a tax freeze), seniors turning 65 exchange their tax break now for a promise that they'll avoid those unpredictable tax increases that will hit everyone else later. Which is better for the homeowner? It depends. Live a long time after retirement in the same house and the tax freeze will probably be better over the long run. Sell and move soon after retirement (or, God forbid, die) and the tax exemption will probably be better because of its immediate benefits.

From the discussions during the election campaign and during the two work sessions I can't see any support for Omar's idea. Council member Steve Mitchell recognized that a tax freeze limits the city's flexibility in face of economic stresses in future years. Council member John Murphy recognized that a flat tax exemption benefits the middle class more than the affluent, whereas a tax freeze doesn't have this progressive effect. Mayor Gary Slagel couldn't seem to grasp that the exemption goes away under Omar's scheme. Some council members sat silent, possibly reflecting lack of interest in the proposal or perhaps just confusion.

A Richardson resident, speaking during the "open mike" visitors session said flatly: a tax freeze is permanent by law, but the exemption, for all practical purposes, might as well be permanent also. The public is never going to allow the council to take away a tax exemption now in exchange for a promised benefit later. If the council does, they'll be the ex-council after the next election.

If the Richardson City Council goes along with Omar's proposal, we'll likely see a repeat of what happened in Dallas County in 2007. Dallas County instituted a senior tax freeze while eliminating a senior tax exemption. Outrage by seniors over losing their exemption forced the county to restore the exemption two weeks later. Now Dallas County seniors benefit from both an exemption and a freeze.

An immutable law of taxation is that if one group of taxpayers gets a benefit, another group of taxpayers has to pick up the slack. In the case of Dallas County, the benefit given to seniors comes at the expense of younger homeowners. And that's what's likely to end up happening in Richardson if Amir Omar is successful in getting the Richardson City Council to go along with his scheme.

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