States Looking to Make Property Taxes Affordable Should Turn to ‘Circuit Breakers’

Contact: Jon Whiten ([email protected])

Many state legislatures this year have been considering property tax cuts – but too many are ignoring the solution that speaks more directly to questions of property tax affordability than any other policy option: the “circuit breaker,” which is the subject of a new report from the Institute on Taxation and Economic Policy.

What are circuit breakers? They 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.

While lawmakers in a few states – like North Dakota and Pennsylvania – have either passed or are considering circuit breakers, others – like Florida and Texas – are more focused on flawed policies like property tax caps. (See the bottom of this release for a list of states that have passed or are currently debating property tax cuts.)

“We see property tax cuts being touted all the time as ways to improve affordability, but more often than not they’re actually tilted toward the people who need them least,” said Carl Davis, ITEP’s research director and an author of the report. “If you’re trying to improve property tax affordability, there’s no policy better suited to the task than circuit breakers. It’s the only policy option that even tries to measure how much property tax a family can actually afford to pay.”

The ITEP report explores circuit breakers and explains why they are the best policy solution for property tax affordability. The key findings:

• Most states (29 and the District of Columbia) offer some kind of circuit breaker in 2023, though these policies vary widely in size and scope. Another 16 states offer an income-limited property tax cut that falls short of being a true circuit breaker. Just five states do not offer any kind of income-targeted property tax break at all: Arkansas, Kentucky, Mississippi, South Carolina, and Texas.
• Slightly more than half of states with circuit breakers (17 out of 30) target property tax cuts exclusively to seniors, on the theory that older taxpayers may have more difficulty affording the property taxes on a home they bought during their prime earning years. But other households are susceptible to a property tax “overload” as well including, for example, people who have recently lost their jobs or who live in gentrifying areas.
• More than two-thirds of states with circuit breakers (21 out of 30) extend their programs to at least some renters, and Oregon provides its circuit breaker exclusively to renters. Including renters is especially vital to ensuring that people of color can benefit, as centuries of racial exclusion and discrimination have meant people of color of all ages are much more likely to rent and to work in jobs with lower wages.
• Circuit breakers are most effective when their benefits are large enough to meaningfully lower property taxes, their eligibility criteria are not overly restrictive, and residents know about them and can easily access them.

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.

Lawmakers in 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.

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