Property Tax Relief in New England January 23, 2015 Adam H. Langley Senior Research Analyst Lincoln Institute of Land Policy www.lincolninst.edu
Property Tax as a % of Personal Income OK AL IN UT SD MS ID MO NC WV ND HI TN KY LA NM AR DE DC TX MI MA MT CO NE OR IA FL MN KS CA AZ PA SC OH NV VA GA WA MD RI ME NY AK WY CT WI IL NJ NH VT Property Taxes as a Share of Income (2011) 6% 5% Rank for New England States: NH (2), VT (3), RI (4), ME (5), CT (9), MA (15) 4% 3% 2% 1% 0% Source: Lincoln Institute of Land Policy, Significant Features of the Property Tax. Data from U.S. Census Bureau, Annual Survey of State and Local Government Finances.
8% State-Local Taxes as % Family Income Property Tax Sales & Excise Taxes 6% 4% 2% 0% Lowest 20% Second 20% Middle 20% Fourth 20% Next 15% Next 4% Top 1% Source: Institute on Taxation & Economic Policy, Who Pays (5 th Edition).
Criticisms of property tax: X Not directly tied to ability to pay X Regressive? Strengths of property tax: More progressive than alternative revenue sources Stable over the business cycle What to do about high property taxes? Property tax relief programs Homestead exemptions and circuit breakers
Homestead Exemptions Exempt certain amount of assessed value from taxation Reduces amount of taxes owed on property $100,000 $200,000 $400,000 Home Home Home Tax before exemptions (1% rate) 1,000 2,000 4,000 $20,000 Homestead Exemption Taxable value after $20,000 exemption 80,000 180,000 380,000 Tax after $20,000 exemption 800 1,800 3,800 $ Savings 200 200 200 % Savings 20% 10% 5% Percentage exemptions not very progressive
Circuit Breakers Prevent households from being overburdened by property taxes Assist those with the least ability to pay Classic circuit breaker sets a threshold percentage of income that property taxes must exceed before any tax relief is available Circuit breaker benefit offsets taxes above this point
Property Tax as % Income 5% Threshold Circuit Breaker 10% 8% 6% 4% 2% Circuit breaker kicks in above 5% Circuit breaker credit Property Tax Due 0% Home 1 Home 2 Home 3 Home 4 Home 5
Homestead Exemptions vs. Circuit Breakers Homestead Exemptions Circuit Breakers Goals 1. Progressive Yes Yes 2. Help those with least ability to pay Not really (Covers all owners) Yes (Targets most burdened) Other Considerations High participation rates Yes No Cover renters No Yes
Property Tax Relief in New England All six states use some type of property tax exemption and circuit breaker But Small groups of taxpayers and/or modest benefits Information on state programs Lincoln Institute s Significant Features of the Property Tax Estimates of program costs State budgets and tax expenditure reports American Community Survey data on property taxes, home values, and other characteristics for 6.5 million households
Property Tax Exemptions and Credits (2012) % Homeowners Eligible Cost as % State Gov t Spending Average Tax Program Costs Savings ($ Millions) CT 19.9% 42 7.7 0.04% MA 7.6% 367 44.2 0.12% ME 100.0% 127 50.3 0.74% NH 23.4% 134 11.7 0.23% VT 0.8% 158 0.2 0.01% Limited to small groups of taxpayers Veterans, disabled/blind, disabled veterans Modest tax savings for more broadly available programs Maine resident exemption is $10k Programs for all veterans in CT and NH have average savings of $31 and $50 Source: Langley (2015), Tax Savings from Homestead Exemptions and Property Tax Credits, Lincoln Institute Working Paper, forthcoming.
Circuit Breakers % Households Claiming Benefit Average Tax Savings Program Costs ($ Millions) Cost as % State Gov t Spending CT 73.5% 171 171.0 0.94% MA 73.8 0.20% ME 16.8% 544 50.6 0.75% NH No data No data RI 13.9% 276 15.7 0.29% VT 150.1 3.85% More substantial and broad-based than exemptions, but Don t always use threshold approach: CT, NH Low income ceilings: RI ($30k), NH ($40k), CT ($39.5k for one program) Seniors only: MA, CT (For generous program) Exclude renters: NH Source: State sources, U.S. Census Bureau, American Community Survey.
Conclusion High property taxes in New England Property tax relief programs can help All New England states use these programs But Cover small groups of taxpayers and/or provide modest benefits Expand use of property tax relief programs Property tax more progressive Assist homeowners with least ability to pay