Many states have implemented reforms that limit property tax increases. This may include assessment limits, levy limits or rate caps.
Assessment limits ensure stable property taxes even as real estate values increase, breaking the connection between government spending and property values, shifting costs on to new buyers.
Assessment Limits
Assessment limits limit how much an individual homeowner’s property taxes can increase due to increases in assessed values. They come in various forms; most commonly freezing or rolling back assessments after certain triggering events–change of ownership or renovation–has taken place. Such policies often prevent homeowners from downsizing after leaving empty nesters behind and cause highly unequal tax burdens between similar properties.
Distorted taxpayer decision making and limited transparency and accountability within the property tax system make circuit breakers or truth in taxation measures an ideal solution to assist households whose property taxes rise beyond their ability to pay.
Levy Limits
Levy limits focus on the amount of revenue collected; imposing rollbacks or reductions to ensure aggregate collections do not surpass certain limits. Levy limits can protect property tax increases from accidental policy decisions such as rate reduction inaction or simply rising values.
Levy limits may contain provisions that permit existing homeowners to bring their favorable assessed value with them when moving within the same school district, effectively solving one problem while creating another: it incentivizes existing homeowners to stay put even if renovating or downsizing would involve losing out on preferential assessments by making such moves inevitable.
Well-crafted levy limits are essential in keeping property taxes under control without creating perverse incentives for home ownership among older residents or discouraging younger people from purchasing or building homes. Levy limits should also ensure that tax burden is tied more directly to relative market value than absolute assessed value; this way, supply does not become decoupled from demand.
Rate Limits
Rate limits act as structural impediments to the growth of property tax revenues, such as capping maximum rates allowed, requiring voter authorization before raising them, or freezing rates altogether. Although these restrictions limit government officials’ ability to engineer conscious tax increases, they often serve as essential components of good governance: they help ensure property payments match owners’ ability to pay, as well as avoid overburdening lower value properties with taxes that track with their assessment values but fail to keep pace with underlying income streams of their owners.
Additionally, these laws aim to discourage split roll taxation, which is economically inefficient and increases revenue volatility. Unfortunately, however, these policies don’t address perverse incentives to remain in one’s current home: for instance, homeowners who move must give up any preferential assessments they enjoyed in their old neighborhood and accept market-rate assessed values instead. Some states have attempted to address this concern through portability provisions that allow homeowners to transfer favorable assessments with them when moving; but this can simply create other problems in other neighborhoods.
Tax Credits
Many state and local governments provide income or property tax credits as an incentive to encourage certain forms of behavior. Refundable credits, for instance, allow taxpayers to subtract the credit amount from their calculated tax liability; making it possible for them to end up owing no taxes at all.
Refundable credits may help a local government reduce the amount of state aid it must collect, relieving pressure from officials to maintain rate discipline while serving as an indirect subsidy between communities with lower tax rates and those with higher ones.
