For Immediate Release
Contact: Anthony Flint 617-661-3016 x116
CAMBRIDGE, Mass. (May 7, 2009) – State and local governments could make better use of “circuit breaker” programs to provide targeted property tax relief based on ability to pay, according to a new report by the Lincoln Institute of Land Policy.
Property Tax Circuit Breakers: Fair and Cost-Effective Relief for Taxpayers, the latest Policy Focus Report published by the Lincoln Institute, suggests ways to reduce the tax burden on families whose property tax bills are a large share of their income, without further stressing local governments struggling to provide services. The report is set to be released May 8, 2009 at the Lincoln Institute with a presentation at "Economic Perspectives on State and Local Taxes," an annual meeting of New England state legislators and think-tank executives.
Property tax circuit breakers – aimed at preventing taxpayers from being overburdened by property taxes, just as electrical circuit breakers keep circuits from being overloaded by current – are in use in some form in 33 states, the report says. Most of those programs are limited to elderly taxpayers, while 12 states plus the District of Columbia have circuit breakers in place for all ages.
“The property tax is unpopular because it’s visible—paid a few times a year in large amounts—and because it is not linked to a flow of income, so it can become a large fraction of income,” said Gregory K. Ingram, president of the Lincoln Institute of Land Policy. “Amid the hue and cry for property tax reform, a circuit breaker program is efficient because it targets those in need rather than reducing everyone’s taxes regardless of their tax burden.”
The property tax can be particularly onerous for low- and moderate-income families, families of limited means whose property tax bills have risen faster than their incomes, or those whose incomes have declined due to layoff, retirement, divorce, or illness. Households whose property tax payments are a large share of income face real hardships—including being forced to move or forgo expenditures on basic needs. A well-designed circuit breaker program calibrates the property tax based on ability to pay.
Many proposals for property tax relief invoke cases where low-income households face heavy property tax payments, but then advocate general tax relief for all. These proposals are very costly because they cover all taxpayers. In addition, such proposals often curtail local governments’ ability to raise revenue and reduce their ability to independently fund local services.
Property Tax Circuit Breakers: Fair and Cost-Effective Relief for Taypayers makes recommendations about how to design an effective circuit breaker program that avoids many of the mistakes of existing programs. The report estimates that the cost of a well-designed circuit breaker program that provides substantial relief to overburdened households is in the range of six percent of property tax revenues.
The ingredients of a well-designed program include targeting taxpayers of all ages, limiting relief for high-value homes, broadly defining income and including Social Security checks as income, using a simple application system and funding outreach. Ultimately, the best circuit breaker for a particular state depends not only on how high the state’s property taxes are, but on the state’s tax structure and the division of governmental responsibilities between the state and local government, the report says.
Property Tax Circuit Breakers: Fair and Cost-Effective Relief for Taypayers, [2009 / 44 pages / Code PF019 / ISBN: 978-1-55844-192-7] was authored by John H. Bowman, Daphne A. Kenyon, Adam Langley, and Bethany Paquin.
About the Authors
John H. Bowman is emeritus professor of economics at Virginia Commonwealth University. He is a widely published expert on property taxes, including Property Tax Circuit Breakers in 2007: Features, Use, and Policy Issues, the Lincoln Institute working paper that was the starting point for this report.
Daphne A. Kenyon is principal of D. A. Kenyon & Associates, a public policy consulting firm in Windham, New Hampshire, and she serves on the state’s Board of Education. She is a visiting fellow at the Lincoln Institute.
Adam Langley is a research assistant at the Lincoln Institute of Land Policy, where he has co-authored reports on property taxes and school finance.
Bethany P. Paquin is a research assistant for the Lincoln Institute of Land Policy and D.A. Kenyon & Associates.
About the Lincoln Institute of Land Policy
A leading resource for key issues concerning the concerning the use, taxation, and regulation of land, the Lincoln Institute of Land Policy provides high-quality education and research, and strives to improve public dialogue and decisions about land policy.
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