CAMBRIDGE, Mass., November 3, 2021 / PRNewswire / – Amid rising real estate values, cities and states must provide targeted relief to keep property taxes affordable while avoiding overly broad measures that could undermine the largest source of local income, a new report finds.
In the Policy Focus Report Property Tax Relief for Homeowners, Lincoln Institute Adam Langley and Joan Youngman evaluate more than a dozen common tax relief instruments and explain how state and local decision-makers can make tax systems fair and financially sustainable. They recommend a mix of solid tax administration, targeted relief, and solid government funding.
“An approach that includes policies such as breakers, deferral, sound valuation and collection practices, and well-designed state aid formulas will promote a tax system that is fair and affordable to taxpayers while delivering the revenue necessary to maintain quality public services are required. ”write the authors.
The report addresses a challenging aspect of property tax: higher home values don’t always mean higher cash flow for homeowners. It is therefore important to keep the tax bill stable.
To maintain stability, states sometimes take ineffective measures that destabilize state and local budgets, reduce the quality of public services, and offer disproportionate benefits to wealthier homeowners. The most common of these are far-reaching restrictions on local tax rates, income and taxable property values.
“Any state-imposed tax ceiling reduces local control over budgetary decisions, reducing the ability of local governments to respond to taxpayer preferences and changing circumstances,” write Langley and Youngman.
Instead, politicians can pursue targeted approaches to keep tax bills as stable as possible and to relieve those in need.
A regular and accurate valuation of the property is vital. Without it, the rated values remain artificially low until they finally skyrocket after a long-delayed reassessment. In addition, if property values are rising faster than incomes, policymakers must lower tax rates accordingly to stabilize the tax bill.
While sound valuation and rating practices go a long way in avoiding financial hardship, targeted tax breaks are needed to support some homeowners, such as homeowners. whose property tax bills are still growing in relation to their income.
Langley and Youngman recommend circuit breakers that give those whose tax bill exceeds a certain percentage of income a property tax break – so-called because they work like a switch that breaks a circuit when too much current flows. They also recommend deferrals that defer taxes until the property changes hands so that homeowners or their heirs can use the proceeds from the sale of the home to pay taxes. Finally, they recommend monthly payment options so that homeowners don’t face heavy bills once or twice a year.
While cities and towns can manage such programs, states play a crucial role. You need to remove legal barriers that prevent local governments from effectively administering property taxes and provide solid help to even out differences in property value between different cities. Adequate government funding ensures that even wealthy jurisdictions can offer high quality local services at affordable tax rates.
“If policymakers are seriously interested in a targeted homeowner property tax relief that has the lowest unintended impact or spillover effects, they would benefit from a serious study of the concepts and approaches presented in this report,” said Alan Thorn Festival, Head of the Idaho State Tax Commission Real Estate Tax Office. “It couldn’t be more current and complete.”
The report can be downloaded for free from the Lincoln Institute website: https://www.lincolninst.edu/publications/policy-focus-reports/property-tax-relief-homeowners.
The Lincoln Institute of Land Policy seeks to improve the quality of life through the effective use, taxation, and management of land. The Lincoln Institute, a not-for-profit private corporate foundation with origins dating back to 1946, researches and recommends creative approaches to land as a solution to economic, social, and environmental challenges. Through education, training, publications and events, we integrate theory and practice to make political decisions around the world.
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SOURCE Lincoln Institute of Land Policy