Property Tax Circuit Breaker

The Institute on Taxation and Economic Policy revealed that the poorest 20% of Americans paid 3.6% of their income in property taxes, compared to 2.7% of income for middle-income and 0.7% of income for the wealthiest 1% of Americans. State lawmakers wanting to enact residential property tax relief have two broad options. The first is across-the-board tax cuts for taxpayers of all income levels, such as tax cap or homestead exemption, and targeted tax breaks, such as a property tax circuit breaker.

What is a property tax circuit breaker?

A property tax circuit breaker is a tax relief program that aims to reduce the property tax burden for certain individuals. Its name is derived from an electrical circuit breaker, which shuts off the electrical current when a system is overloaded. Likewise, a circuit breaker programs kicks in when a taxpayer pays a high proportion of his her income on property taxes. Property tax breakers can be used to increase tax equity as they reduce the property tax burden, measured in relation to income.  

Which states have property tax circuit breakers and for whom?

As can be seen in the figures above, eligibility varies by state, but most circuit tax breaker programs are state property tax exemptions or credits for the elderly. The eligibility measures vary by state. Some states employ income brackets or income and wealth ceilings. The complexity of the tax circuit breakers also vary by states. For example, while some states have simple eligibility features, such as Massachusetts, others like Minnesota have very complex systems with multiple thresholds varying by income, and other characteristics such number of dependents.

Are there possible changes to Minnesota’s tax circuit breaker?  

In 2011, the legislative tax conference committee proposed cutting the state’s renter’s credit by $186 million a year. Under this proposal, the Minnesota Budget Project estimated that on average seniors and people with disabilities would see a decrease in their credit of $190, while other families would see a decrease of $335. In fact, it was estimated that 72,500 households would lose their refunds entirely. Governor Dayton vetoed this proposal. 

Despite Governor Dayton vetoing the 2011 bills, in this 2013 Legislative Session there are new bills that may affect the property tax circuit breaker. For example, Bill H.F 2 attempts to raise the percentage of rent constituting property tax for the renter property tax refund from 17% to 18%. We will have to wait and see if this bill is passed. One thing is for certain, if Minnesota wants to continue lessening the tax burden on low-income, and elderly households, then it should maintain its property tax circuit breaker or look into other tax relief programs, as tax circuit breakers are only one tool in the property tax relief toolbox.     

Note: All images are from the Lincoln Institute of Land Policy.