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Income based property tax relief: circuit breaker expenditures

PFM, Vol. 14 No. 2, (2014)

This article provides an overview of the mechanisms used by states to provide income-based property tax relief, commonly called circuit-breakers. Based on the analogy to an electrical circuit breaker, these mechanisms provide property tax relief to overburdened taxpayers. The main advantage of such mechanisms, when compared to other forms of property tax relief such as blanket homestead exemptions, is that the tax relief is linked to income in some manner. In this way, circuit breakers provide targeted property tax relief. A wide variety of mechanisms are used by the 34 states with circuit breakers, so this article reviews the various types of circuit breaker features, including single threshold, multiple threshold, sliding scale and hybrid or quasi-circuit breakers being analyzed. Design features for each of these mechanisms are considered and evaluated. Issues in circuit breaker program administration are also considered. The benefits, costs, and distributional consequences of circuit breaker programs are reviewed with an eye toward program evaluation. Several design features are recommended based on this review and analysis of circuit breakers. Finally a case study of the Idaho quasi circuit breaker program analyzed in this article is an example of how a state can evaluate its property tax relief program.

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