May 11, 2023
May 11, 2023
Concerns over property tax affordability have been at the forefront this year as housing prices have climbed and property tax bills have often increased along with them. As lawmakers mull a range of property tax cuts, our new report points toward a policy called “circuit breakers” as the best possible approach—albeit one that’s receiving far too little attention in the states.
Property taxes are the backbone of most local budgets and are sometimes a significant state revenue source as well. These taxes are vital to ensuring communities have well-funded schools, safely built environments, and unpolluted areas where people can live comfortably and thrive economically. And with local governments confronting steeply higher expenses and a backlog of unmet needs, some amount of new property tax revenue is essential.
Those higher property tax bills have drawn the attention of state lawmakers, however. Already this year lawmakers in states like Arkansas, Georgia, Indiana, Iowa, Missouri, Montana, and North Dakota have enacted property tax cuts. Meanwhile, lawmakers in Florida, Nebraska, Pennsylvania, and Texas are continuing to debate cuts and voters in Colorado will be asked to approve cuts in November. Some of those plans are far better designed than others.
The worst of the bunch are ideas out of Florida and Texas to create or tighten caps on how quickly properties’ assessed values can grow. Over time, limiting assessment growth can create immense disparities in property tax liability between neighbors as long-time homeowners who have racked up years or decades of tax cap savings pay far lower taxes than new arrivals. Young families seeking to buy their first home suffer most under these caps because artificially holding down the property tax bills of older homeowners pushes more of the responsibility for funding local services onto new buyers.
The best property tax cut idea, by contrast, is the property tax circuit breaker—which is also the topic of ITEP’s new report. “Circuit breakers” work exactly how they sound: they prevent homeowners and renters from being “overloaded” by property taxes that go beyond what they can afford to pay. Under most circuit breakers, property taxes above a certain percentage of income are deemed unaffordable and credited back to the taxpayer. In Maine, for example, eligible taxpayers can claim a credit if their property taxes exceed six percent of their income. Twenty-nine states and the District of Columbia have some form of circuit breaker in effect today, though some are far more robust than others.
Given the amount of attention being paid to property taxes nationwide right now, disappointingly little time has been spent discussing property tax circuit breakers.
Some policymakers, however, are taking a better approach. North Dakota lawmakers, for instance, recently approved an expansion to their state’s circuit breaker for senior citizens (a rare bright spot in what was otherwise a highly flawed piece of tax legislation.) Meanwhile in Pennsylvania, Gov. Josh Shapiro has urged lawmakers to expand their state program while some legislators are urging even bolder circuit breaker reforms.
Designing a high-quality circuit breaker involves many choices. Among the most important are whether to include younger people as well as seniors (which we recommend), and whether to include renters in addition to homeowners (which we also recommend, as renters pay substantial property taxes indirectly through their rent). These reforms are particularly key to ensuring that people from historically marginalized communities benefit, as centuries of racial exclusion and discrimination have meant people of color in all age cohorts are much more likely to rent and to work in jobs with lower wages.
While debates over property taxes continue across the country, lawmakers should give circuit breakers another look. By measuring property taxes relative to income, circuit breakers speak more directly to questions of property tax affordability than any other policy option. And because their benefits are tailored to people who actually need the help, they come at a far lower cost to state budgets than most other types of property tax cuts. These highly targeted, affordable policies are the surest route toward ensuring that families aren’t confronted with property tax bills they can’t afford.