When it comes time to pay property taxes, this group of Idahoans will be hit hardest
The owner of a $1.3 million home in the Boise Foothills paid $17,491 in taxes last year. The owner of a $285,300 house in Southwest Boise paid $2,202. Who was hit harder?
More likely, the owner of the less expensive home.
That’s because in Idaho, those who earn less pay a greater percent of their income to property taxes, according to a new study by two tax policy think tanks.
“Property taxes don’t take into account the ability of the family that lives there to pay,” said Alejandra Cerna Rios, executive director of the Idaho Center for Fiscal Policy, a Boise nonprofit that researches Idaho tax and budget issues that worked on the study.
For example, those making over $418,700 pay 0.3 percent of their earnings to property taxes, while Idahoans making $37,900 to $58,700 pay 1.4 percent — a share four times greater.
The problem has become especially pronounced in growing areas like Ada County, where the median residential assessed value increased 60% between 2009 and 2019, to $296,500 from $185,500.
As those taxes rise, even people who may have their homes completely paid off may struggle to afford the cost of living. Many seniors have found their tax bills rising while their Social Security or pension payments remain stagnant.
Homeowners aren’t the only ones feeling the cost of rising taxes. Landlords pass property taxes onto renters — whose incomes are on average lower than homeowners’ — who are also seeing their monthly housing costs increase year after year.
Now, in the midst of the coronavirus pandemic, Cerna Rios worries that those who lost their jobs or were forced to work reduced hours may not be able to afford their property taxes this year. This spring, low-income workers suffered the sharpest job cuts of any income group. Nearly a third of households making less than $40,000 reported a job loss in March, compared with 19% of workers in households making between $40,000 and $100,000, according to the Federal Reserve.
“Folks with a job loss or income reduction may find that their bill is outsize compared to their income,” she said.
With residents’ financial concerns looming, the mayors of Boise, Meridian and Nampa proposed budgets that would not increase the amount of property taxes they collect.
Despite this, homeowners could still see their property taxes go up. That’s because the price of residential property has continued to increase faster than the cost of commercial and farm property, leading them to carry a larger burden of the property tax share.
In Idaho, property taxes are the way that cities fund services like police, fire, new parks and libraries. The Legislature does not give them the ability to levy other types of taxes, such as a local sales tax or an income tax.
Cerna Rios says the property tax is an important tool, but it’s not applied fairly.
“When we think about fairness and at the same time collecting revenue to support the services that cities provide, there’s a question of how to do that in a way that allows us to shoulder the load more equitably,” she said. “There should be a priority for communities to avoid taxing people into hardship.”
The definition of fairness depends on who you talk to. According to a 2015 survey of taxpayers by the consumer finance site WalletHub, most taxpayers agree that a progressive system is most fair, in which the wealthy are taxed at higher rates than the poor.
But conservative groups say that lowering taxes across the board, including for businesses, boosts investment in the economy, benefiting everyone.
That’s largely been the philosophy in Idaho, with a Republican-dominated Legislature that cheers most forms of tax cuts. The House has also tried to force them into city halls: In this year’s legislative session, House Majority Leader Mike Moyle attempted to pass a bill that would have frozen property taxes for a year.
The Idaho Center for Fiscal Policy says other steps could reduce the disparities in the property tax system, without harming city budgets.
One is to adjust Idaho’s circuit breaker program, which provides a property tax credit to seniors, people with disabilities and widows who earned less than $30,450 in 2019.
Last year, the program — which is funded by sales tax revenue — helped reduce the tax burden of 26,774 Idahoans.
But the circuit breaker has been losing value since the maximum credit amount was fixed at $1,320 in 2006, according to another study from the Idaho Center for Fiscal Policy released earlier this year. Where the circuit breaker once covered 86% of a typical recipient’s property tax bill, it now covers just 60%.
The Center for Fiscal Policy has suggested making the system more effective by expanding eligibility to low and moderate-income homeowners of any age, and increasing the maximum income so that households making more than $30,450 can apply.
Another way to lessen the tax burden? Increasing the homeowners exemption, which in 2016 was fixed at a maximum of $100,000. As housing prices increase, that $100,000 is worth relatively less and less each year as it leaves more of a home’s value exposed to taxes.
“Having both a healthy circuit breaker and a homeowners exemption can go a long way toward making property taxes more equitable,” Cerna Rios said.
But organizations like the Idaho Farm Bureau, the Idaho Realtors, and the Idaho Association of Commerce and Industry have long protested increasing the homeowner’s exemption, because they say it would shift the burden of property taxes away from residential interests and further on business and commercial interests.
“Is it fair to the commercial property or the agricultural property or the rental property or the non-owner-occupied property that they pay more taxes than they otherwise would, because the homeowners are paying less tax than they would with the homeowner’s exemption?” Farm Bureau president Russ Hendricks previously told the Statesman.
The Legislature has formed an interim committee to consider property tax reform. The committee held its first meeting on Friday, July 17, and is expected to meet again this summer.
