Property Tax Circuit-breakers: Good Causes but Bad Economics

Since 1965, 30 states and the District of Columbia have enacted programs designed to reduce the effective rate of property taxation for some low income households and for the elderly. Most often this relief is provided by so-called "circuit-breakers." It is contended that the economic arguments favoring circuit-breakers are empirically unproven and theoretically suspect. The tax may be progressive, not regressive, and the device may transfer income from low to high income households. Any short run redistribution of income to favor the poor or the elderly would, in the long run, merely shift the timing of their tax payments. Circuit-breakers encourage over-consumption of housing and misallocation of housing resources. Reducing the tax base, they produce higher rates and so increase the tax burden.