Chicago Sun-Times Editorial - Don't add to tax misery - Continue relief program for another 3 years/How the '7%' property tax formula works
Chicago Sun-Times Editorial: Don't add to tax misery - Continue relief program for another 3 years
Copyright by The Chicago Sun-Times Editorial
July 27, 2007
If the value of your house soared in the last few years, you're going to pay more property taxes. Will it be a staggering increase, or only a big one? That all depends on what happens in Springfield, where the fate of a key tax relief measure is up in the air. Lawmakers are leaning toward an overly complicated bill that ultimately scales back relief for most homeowners. That measure is better than letting the program expire this year, but we think the relief should continue as is.
The program, known as the "7 percent solution," seeks to prevent Cook County homeowners from getting hit with huge property tax increases as the value of their homes increases. It allows people to exempt up to $20,000 of their home's taxable value in order to limit the value's growth to 7 percent a year, or 21 percent for three years. For people living in rapidly appreciating areas, that can make a huge difference. In Chicago, where many areas saw double-digit increases when they were reassessed last year, the median tax bill this fall would go up 18.4 percent if the program were continued as is, according to an analysis by the Civic Federation. Without it, the median bill would rise 43.6 percent.
The program is set to expire this year, but Cook County Assessor Jim Houlihan has been pushing for its renewal. He argues that the exemption should be raised to $40,000 a year. But the Civic Federation determined that the $20,000 exemption helped many homeowners without being overly burdensome on businesses, apartments and most other classes of property. That might not be the case if the exemption were raised.
Instead of supporting a $20,000 or even $40,000 exemption, the Legislature looks likely to approve a bill backed by House Speaker Michael Madigan (D-Chicago). It would raise the exemption to $30,000, then drop it to $24,000 and then $18,000 before ending the program entirely. But it would grant new exemptions for homeowners who have been in their homes for more than 10 years and whose household income is less than $75,000. As Laurence Msall of the Civic Federation points out, that final provision makes it difficult if not impossible to analyze the impact of the change because we don't know how many people it would cover.
Our property tax system is crazy enough -- let's not complicate things even more. The program should be continued as is, for another three years. It worked to spread out the huge increases of the real estate boom years without negatively affecting too many other taxpayers. It can do it again. But there is one part of Madigan's bill that we do like: the creation of a reform task force. Maybe we can finally make some sense of our property tax system.
For an example of how the tax exemptions work see below
Chicago Sun-Times Editorial - How the '7%' property tax formula works
Copyright by The Chicago Sun-Times
July 27, 2007
To illustrate how the "7 percent solution" works, here's a hypothetical example:
Say you have a house with an equalized assessed value, or taxable value, of $100,000. This value is determined by taking the home's actual worth, or market value, and multiplying it by 16 percent. That assessed value is then multiplied by another number which the state determines each year in order to bring the values of all Cook County properties to 33.3 percent of market value, the standard in other counties.
Say that home's taxable value rises to $150,000 in the next year. Under the current program, the $50,000 rise would be limited to 7 percent. So the taxable value should be $107,000. But wait -- the law only allows a $20,000 exemption. That means we can only shave $20,000 off the $50,000 increase in value, giving the home a taxable value of $130,000.
What's the bottom line? Let's make it easy and say the property tax rate is 5 percent. Five percent of $130,000 is $6,500. That's $1,000 less than the $7,500 the homeowner would pay if the taxable value was $150,000.
What if the taxable value rose to $120,000 from $100,000? Again, a 7 percent increase would be $107,000. That means we have exempted $13,000, which is under the $20,000 cap. So our taxable value is $107,000.
The tax difference? At 5 percent, you'd pay $6,000 without the program, but just $5,350 with it.
Despite being called the "7 percent solution," the $20,000 property tax exemption cap means that the taxable values of some homes could be more than 7 percent.
Copyright by The Chicago Sun-Times Editorial
July 27, 2007
If the value of your house soared in the last few years, you're going to pay more property taxes. Will it be a staggering increase, or only a big one? That all depends on what happens in Springfield, where the fate of a key tax relief measure is up in the air. Lawmakers are leaning toward an overly complicated bill that ultimately scales back relief for most homeowners. That measure is better than letting the program expire this year, but we think the relief should continue as is.
The program, known as the "7 percent solution," seeks to prevent Cook County homeowners from getting hit with huge property tax increases as the value of their homes increases. It allows people to exempt up to $20,000 of their home's taxable value in order to limit the value's growth to 7 percent a year, or 21 percent for three years. For people living in rapidly appreciating areas, that can make a huge difference. In Chicago, where many areas saw double-digit increases when they were reassessed last year, the median tax bill this fall would go up 18.4 percent if the program were continued as is, according to an analysis by the Civic Federation. Without it, the median bill would rise 43.6 percent.
The program is set to expire this year, but Cook County Assessor Jim Houlihan has been pushing for its renewal. He argues that the exemption should be raised to $40,000 a year. But the Civic Federation determined that the $20,000 exemption helped many homeowners without being overly burdensome on businesses, apartments and most other classes of property. That might not be the case if the exemption were raised.
Instead of supporting a $20,000 or even $40,000 exemption, the Legislature looks likely to approve a bill backed by House Speaker Michael Madigan (D-Chicago). It would raise the exemption to $30,000, then drop it to $24,000 and then $18,000 before ending the program entirely. But it would grant new exemptions for homeowners who have been in their homes for more than 10 years and whose household income is less than $75,000. As Laurence Msall of the Civic Federation points out, that final provision makes it difficult if not impossible to analyze the impact of the change because we don't know how many people it would cover.
Our property tax system is crazy enough -- let's not complicate things even more. The program should be continued as is, for another three years. It worked to spread out the huge increases of the real estate boom years without negatively affecting too many other taxpayers. It can do it again. But there is one part of Madigan's bill that we do like: the creation of a reform task force. Maybe we can finally make some sense of our property tax system.
For an example of how the tax exemptions work see below
Chicago Sun-Times Editorial - How the '7%' property tax formula works
Copyright by The Chicago Sun-Times
July 27, 2007
To illustrate how the "7 percent solution" works, here's a hypothetical example:
Say you have a house with an equalized assessed value, or taxable value, of $100,000. This value is determined by taking the home's actual worth, or market value, and multiplying it by 16 percent. That assessed value is then multiplied by another number which the state determines each year in order to bring the values of all Cook County properties to 33.3 percent of market value, the standard in other counties.
Say that home's taxable value rises to $150,000 in the next year. Under the current program, the $50,000 rise would be limited to 7 percent. So the taxable value should be $107,000. But wait -- the law only allows a $20,000 exemption. That means we can only shave $20,000 off the $50,000 increase in value, giving the home a taxable value of $130,000.
What's the bottom line? Let's make it easy and say the property tax rate is 5 percent. Five percent of $130,000 is $6,500. That's $1,000 less than the $7,500 the homeowner would pay if the taxable value was $150,000.
What if the taxable value rose to $120,000 from $100,000? Again, a 7 percent increase would be $107,000. That means we have exempted $13,000, which is under the $20,000 cap. So our taxable value is $107,000.
The tax difference? At 5 percent, you'd pay $6,000 without the program, but just $5,350 with it.
Despite being called the "7 percent solution," the $20,000 property tax exemption cap means that the taxable values of some homes could be more than 7 percent.
posted by Carlos T Mock at 7:18 AM
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