Question

1. Write a policy brief making a recommendation to your town on implementing an alternative to property taxes (other sources of revenue at least 3 pages long)

2. Executive Summary: This section is two paragraphs long; it includes an overview of the problem and the proposed policy action.

3. Policy Recommendations: This section contains the most detailed explanation of the concrete steps to be taken to address the policy issue.

Write a policy brief making a recommendation to your town on implementing an alternative to property taxes

Answer 1

Alternatives to PROPERTY TAX

. 1. Limit Valuation Growth

An alternatives place a limit on the assessed values of individual properties, or freeze or roll back assessed values. Generally respond to concerns that values and taxes are increasing too rapidly for certain properties and seek to provide certainty that taxes will grow excessively in response to market changes. Alternatives shift taxes from properties that are growing rapidly in value to those properties that are not. This proposal allow property to be reassessed at market value when it is sold which has the effect of shifting taxes from long-term homeowners to new homeowners, or to those who move. This alternative tend to result in less revenue for affected taxing districts, although they can have widely differing effects.

This alternative probably require a constitutional amendment. Administratively, this alternative tend to be somewhat complicated and expensive to administer.

Property Value Growth Limit :

Under existing law, assessments are based on market value. This option would limit future annual growth in assessments to a fixed percentage. If the growth limit is set relatively high, most properties would eventually return to their market value (except in the face of long-term high growth). Some variations apply the limit to residential property only, or may require assessment at market value when the property is sold.

Property Value Freeze or Rollback :

This variation would freeze assessed value (either temporarily or permanently) or roll back valuation to a prior year.

Phased-in Valuation Increases:

This option would require a large valuation increase to be phased in over a period of years rather than all at once. Thus, the taxpayer could adjust to and plan for the higher tax bill over a longer period of time.

2. Tax Relief Targeted By Income

This alternatives provide relief to homeowners based on their income or ability to pay and are often called “circuit-breakers”. They typically provide the most relief to those with the lowest income or those whose property taxes consume a lager proportion of their income. They generally respond to concerns that property taxes have increased excessively in relationship to an individual’s income. Circuit-breakers tend to shift taxes to homeowners with higher incomes and to businesses (depending on how they are designed). Or, they may entitle the taxpayer to a refund or tax credit. In some states, a credit is taken in connection with a state income tax. This alternatives tend to result in less revenue for affected taxing or require an appropriation. This alternative would probably require a constitutional amendment, other than those directed towards senior citizens (an existing constitutional amendment already provides greater flexibility in providing property tax relief to seniors).  

Residential Circuit-breaker

This option would eliminate the tax liability for any amount that exceeded a percent of the homeowner’s income. For example, a homeowner earning $30,000 would not pay any tax exceeding 6 percent of his or her income (or $1,800). The tax savings could be realized through a tax credit or a refund.

Remove Age Restriction on Current Senior Exemption

Senior citizens with incomes under $28,000 are entitled to property tax relief. They are exempt from special levies, and if their income is less than $18,000, they also receive a partial exemption from regular levies. Property valuations are frozen when they enter the program. Under this option, the age restriction (age 61) could be eliminated so that all homeowners meeting the income requirements could qualify.

Deferral Options

Senior citizens with incomes under $34,000 currently have the option to defer their property taxes until the sale, transfer, or inheritance of the property. This program could be expanded to allow all ages and, perhaps higher income individuals to participate. This program requires a state appropriation since the state pays the property taxes on behalf of the taxpayer until the taxpayer no longer owns the property. In the longer-term, the deferred taxes are repaid.

3. Homestead Exemptions and Residential Tax Credits.

This alternatives provide relief to homeowners only, usually by reducing the assessed valuation of owner-occupied homes by a flat amount or by providing a tax credit. They typically provide the same amount of relief to each homeowner irrespective of the value of their home. They generally respond to concerns that residential property taxes are too high or that the proportionate share of taxes paid by residential property is excessive. Homestead exemptions tend to shift the tax burden to business properties and some high-valued residential properties. Residential tax credits do not shift taxes (that is, other taxpayers do not end up paying more taxes – they just don’t share in the benefit of the tax credit). This alternative tend to result in less revenue for affected taxing districts, although they can have widely differing effects. Most alternatives probably require a constitutional amendment. Homestead exemptions tend to be moderately complicated and expensive to administer, and a residential tax credit less so. Thirty-seven states offer homestead exemptions or credits. Fourteen states have programs for senior citizens only, fourteen have programs with no age limits, and nine offer programs for all ages with more generous benefits for senior citizens.

Homestead Exemptions

This option reduces the assessed value of a homeowner’s property, usually by a fixed amount (i.e., $25,000). Thus, rather than being assessed on a $100,000 home, the assessment would be based on $100,000 minus $25,000, equaling a taxable value of $75,000.

Residential Tax Credits – A residential tax credit simply subtracts an amount from the homeowner’s bill. The amount can be a fixed amount (e.g., $100) or based on a level of assessed value (E.g., $25,000 of assessed value).

4.Across-the-Board Reductions.

This alternatives proportionately reduce the tax burden of all property taxpayers, residential and commercial, by directly or indirectly lowering levy rates. They generally respond to concerns that the overall property tax burden is too high or that governments rely too heavily on property taxes as a source of revenue. They do not shift taxes to other taxpayers, but they result in less revenue for taxing districts

State Levy Elimination

One option is to eliminate the state school levy.