September 29, 2006

Correct Diagnosis, Wrong Cure

David Hahn, the Democratic candidate for governor in Nebraska, wants to reform the state's property taxes. Hahn was recently quoted as saying "The unfairness in our property tax system is obvious and worsening ." Hahn should be congratulated for recognizing the unfairness of the property tax system in Nebraska. However, Mr. Hahn's proposed fix is a package of property tax changes , including a $50,000 homestead exemption that could eventually grow to $100,000. This budget-straining, poorly targeted $100,000 exemption is a poor solution to the state's property tax inequality troubles.

The fundamental inequality of the property tax is rooted in the regressive nature of that tax. Since home values are a much bigger share of middle-income family's total wealth than higher-income families, property taxes require these low-income families to pay a much larger share of their earnings than higher-income families must pay. Property tax savings that are targeted to low and middle-income families will do much more to fix the inequality of the property tax system than would the proposed $100,000 exemption, which would be given to middle class and wealthy taxpayers alike.

One such targeted solution to property tax inequality in Nebraska is a circuit-breaker. Just like electrical circuit breakers protect against electrical overload, property tax circuit breakers protect against property tax "overload". Circuit breakers work by preventing property tax payments from exceeding a given percent of a homeowner's income (for more information on circuit-breakers, check out this ITEP policy brief). David Hahn should be applauded for opening up a dialogue on property tax fairness in Nebraska. Any serious public debate about property tax equality, however, must include discussion about property tax circuit breakers.


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