Elections & Politics

Opinion

The Wrong Tax at the Wrong Time

By Mark Zimmerman

Orange County has always prided itself on being a progressive community that strives for fairness. When the Orange County Commissioners chose to add a referendum to the May 6 primary election ballot imposing a new sales tax on property, known as the transfer tax, it abandoned those principles.

The transfer tax is a regressive tax that will disproportionately impact lower-income homeowners, place an unnecessary burden on affordable housing and nonprofit organizations and unfairly concentrate our taxes on a minority of our fellow citizens. The way it works is that when you sell your home or some land, Orange County will take 0.4 percent of your selling price before giving you the rest of your proceeds.

Why is the transfer tax regressive? It is well documented that most fixed-rate sales taxes are regressive. The transfer tax is nothing more than a fixed-rate sales tax on your property. Lower-income homeowners pay more of their income for housing, particularly in a high housing-cost county like Orange. Their homes also account for more of their total assets than higher income households. The lower one’s income and lower the price of one’s home, the greater the impact this transfer tax has on a family’s finances.

Home ownership is one of the best ways for families to raise their standards of living. It is just bad policy to strip them of the equity they worked so hard to earn just because they have to move.

Live in an affordable housing unit? You’ll have to pay. Live in a Habitat House? You’ll have to pay. Building an affordable house? The transfer tax may be paid multiple times by the original property owner, the developer and then the builder. Suddenly that home is no longer so affordable. Own a church or a nonprofit? You don’t have to pay property taxes but, sorry, you’ll have to pay this transfer tax.

No property sale is exempt from the transfer tax.

Why is the transfer tax unfair? The proceeds from this tax will support us all. But the tax itself is piled high on the shoulders of just a few in each year. We shouldn’t tax a minority to pay for the majority.

This problem in principle has an onerous practical effect. By not spreading the burden out to everyone, which would minimize its impact on any one person, the weight of this transfer tax on those who sell their homes is dramatic. For the average home seller in 2007, the transfer tax bill would have been $1,371. If the equivalent amount of money was raised by regular property taxes, it would take 14.3 years to pay off that one transfer tax bill.

There are other problems with electing the transfer tax. Its revenue is historically unpredictable and unreliable because it is tied to the real estate market. Real estate is experiencing some real challenges right now, meaning revenue estimates from the transfer tax have already dropped significantly, down 13 percent so far. Why would we choose to add a new tax on which we cannot depend? Why would we add more costs to people selling their homes in this real estate market?

The transfer tax is a bad idea. So, how do we get more revenues? First, we should continue to push for better fiscal stewardship. Second, we should revisit another new revenue option the commissioners considered, the restoration of the 0.25 cent sales tax. This tax would have minimal individual impact; the average person would only have to pay around $5 per year for an equivalent amount raised by the transfer tax. And this sales tax exempts food and medicine, making it much less regressive. Third, we need to get serious about attracting, nurturing and retaining responsible commercial development in our economic development zones, which have lain fallow for too long. Until we have a more diverse tax base, the commissioners will continue to tax our homes and property, one way or another.

As for the transfer tax, it is certainly not the right tax. It is certainly not the right time. It is not right for Orange County, now or in the future. There are better, fairer alternatives. I urge each of you to vote no on this referendum in the May 6 primary.

Mark Zimmerman owns the Re/Max Winning Edge real estate brokerage in Chapel Hill and is vice president of the Chapel Hill Board of Realtors. He is also spokesperson for Citizens for a Better Orange County.