Virginia would benefit from a sound statewide property tax relief policy, according to a News Letter article by John H. Bowman, emeritus professor of economics at Virginia Commonwealth University and authority on public finance. In his view, well-designed property tax relief may be more crucial than ever for people squeezed by reduced income during this recession. The property tax itself has a vital role to play in meaningful self-government by being under local control.
It is the oldest broad tax in the United States and more "visible" than many taxes, helping people stay aware of the costs they bear for government services.
Rather than eliminate the property tax, localities should streamline administration of it and keep their assessments fair and always abreast of market developments.
Along with those improvements, Bowman argues, the General Assembly should adopt a statewide "circuit breaker" form of tax relief, designed to prevent an overload of the property tax on certain homeowners, just as an electrical circuit breaker protects against an overload of current.
Such relief is found in at least 35 states now. Virginia differs from other states by making property tax relief available only as a local option and with local funding. Bowman advocates a circuit breaker that includes four key features:
(1) State funding, because income levels and community wealth differ widely across the state.
(2) A "threshold formula" that sets a level that the tax must exceed as a percentage of income before any relief is received.
(3) A broad definition of income that considers all sources, including Social Security, so that only the truly needy of all ages receive relief.
(4) Relief only up to a certain limit of home value, so that owners of very expensive homes don't get full relief.
The worst form of property tax relief is a system based on the amount of increase in assessed value, he says, noting that most homeowners don't suffer financial hardship just because their assessments rise. Furthermore, age is not a good measure of need. In fact, poverty rates are lower for the elderly than for the non-elderly.
Targeting property tax relief to where it is needed can be achieved best by using a well-designed circuit-breaker approach, Bowman argues.
The hallmark of circuit-breaker tax relief is that relief declines as income rises.