Louisiana provides one of the highest homestead property tax exemptions in the nation. Homeowners are exempt from paying most property taxes on the first $75,000 of their home value, keeping property taxes quite low compared to elsewhere. Yet, several constitutional amendments are being considered this legislative session that would increase the homestead exemption. The proposals range from a gradual increase tied to the rate of inflation to a more radical doubling of the current exemption. These popular proposals are often misunderstood as tax breaks, when they are really tax shifts that would lower taxes for some and increase taxes for others. The governor has indicated his support for a gradual increase in the homestead exemption that would tie increases to the rate of inflation. It would be a mistake to narrow the property tax base and shift taxes from one group to another in order to win political favor.
For decades, PAR has opposed any increase in the homestead exemption because it would stifle expansion of the local tax base and inequitably impose tax increases on both businesses and residents. Property taxes are imposed locally to fund services that directly affect home values. The goal of the state’s property tax laws should be to ensure taxes are levied with maximum fairness on the broadest possible base of homeowners. Local revenues should be allowed to rise with increased property values and new development to ensure the fiscal stability of local government.
Every four years, when property is reassessed, tax rates (millages) are automatically adjusted up or down to assure that tax collections are stable. If taxable values decline due to an increase in the homestead exemption, the millage levied on the remaining taxable properties would be increased. This would mean a substantial tax increase for the taxable property that remains on the rolls in each community. Both business property and residential property would be impacted. The millage increase would be particularly large in the state’s bedroom communities, where there is little industrial or commercial property to share the burden. Taxes on higher value homes could rise dramatically after the higher exemption is granted. In addition, the tax increase for residential rental property likely would result in an increase in rents.
At the existing exemption level, 46 percent of all homes are completely covered by the homestead exemption, down from 67 percent in 2001 and 83 percent in 1991. Gradually, an increasing number of homeowners are helping to fund the local services provided in their communities. If the homestead exemption is raised, the number of residents who do not pay for local services will rise significantly.
Louisiana property taxes are among the lowest in the nation. The most recent Census data show that the state’s per-capita property tax collections in 2006 were around 48 percent of collections in the South and 58 percent of collections in the nation. Louisiana ranked 46th nationally, with collections at $582 per capita.
While overall rates are low, the property tax burden in Louisiana falls more heavily on business. One way to compare property tax rates is to calculate the ratio of taxes paid on commercial versus residential properties. The Minnesota Taxpayer’s Association’s “50-State Property Tax Study 2008” reports that Louisiana ranks 10th among the states for the property tax burden on businesses. In other words, in only nine states does the property tax burden weigh more heavily on business property than residential property. Louisiana Tax Commission data for 2008 show that businesses paid more than 80 percent of property taxes in the state.
The homestead exemption is a throwback to the state’s populist political culture and increasing it would inhibit economic progress. Local governments must continue to become more self-sufficient. State law already severely limits local taxing authority, and the Legislature should avoid taking any further actions to weaken local fiscal capacity.