Property Tax Hike in Dallas, But Senior Citizens Get a Break

August 30, 2007

A proposal to eliminate the generous exemption that residents 65 and older living in Dallas receive from property taxes was rescinded at a recent city council meeting after outcry from the older voting bloc. From the Dallas Morning News:

Dallas County has become one of the most senior-friendly places to live in Texas.

County commissioners on Tuesday unanimously reinstated an exemption for homeowners age 65 and older. The exemption that passed in 1988 knocks $69,000 off the taxable value of a home before the tax rate is applied. It is the fourth-highest exemption in the state.

In addition to receiving that tax discount, seniors in Dallas County also will have their county taxes frozen beginning next year. That means the amount they pay will not increase as long as they own the house, even if the tax rate or their home value increases.

Tuesday's vote came two weeks after commissioners eliminated the senior exemption as part of a compromise that was hatched when passing the tax freeze.

Dallas County joins Tarrant and Collin counties and more than 100 cities around the state that have passed a senior tax freeze. In Dallas County, tax freezes have been passed by Grand Prairie, Mesquite, Rowlett and Sachse.

Seniors who own a house in Dallas County also qualify for a county homestead exemption equal to 20 percent of their home's value, like everyone else. That exemption, which also is among the highest in the state, was never a part of the tax freeze debate.

Are special tax provisions based solely on age poor tax policy? On one hand, the benefit principle would suggest that these individuals may value the services they receive from government less, specifically the services that are typically provided by local property taxes, and thereby they should pay lower taxes for those services. (The classic "I don't have any kids in school" line comes to mind, as well as the capital improvement projects that are likely to outlive these individuals by a long period of time.)

However, if one were to extend that benefit-principle logic to other fiscal policy issues, there would be little reason to believe that the federal government should be paying for the prescription drugs of this generation, a cost that will for most persons far exceed anything they paid into Medicare. In other words, if you want to use the benefit-principle argument in opposition to paying to fund local services, you should be consistent with that argument when it comes to federal policies.

If on the other hand, the argument is merely that some cannot afford their annual bill, why not means-test all property tax payers rather than just provide older homeowners, even wealthy ones, with property tax relief? Or if ability to pay is the only concern, then why not just have an income tax, even though it could lead to even greater economic distortions?

A simple solution for this fixed-income problem could be deferred payment whereby the property tax bill for the elderly individual accumulates until death or time of sale of the house. That is, the person would pay nothing or a small amount while alive and living in the house, but once the person dies or sells the house, he/she would then have to pay all the accumulated tax liabilities. (In a sense, the government would merely be giving the individual a loan that would have to be paid off by the descendants who will inherit the property.)

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