State lawmakers seeking to enact residential property tax relief have two broad options: across-the-board tax cuts for taxpayers at all income levels, such as a homestead exemption or a tax cap, and targeted tax breaks that are given only to particular groups of low-income and middle-income taxpayers. One increasingly popular type of targeted property tax relief program is called a “circuit breaker” because it protects taxpayers from a property tax “overload” just like an electric circuit breaker: when a property tax bill exceeds a certain percentage of a taxpayer’s income, the circuit breaker reduces property taxes in excess of this “overload” level.
The circuit breaker is the only form of property tax relief that is explicitly designed to reduce the property tax load on those low-income taxpayers hit hardest by the tax. Circuit breakers offer several advantages over more general property tax relief measures:
- Circuit breakers are targeted to selected income groups. As a result, they are much less expensive than “across the board” property tax breaks—and the benefits go to the taxpayers for whom property taxes are most burdensome.
- The low-income taxpayers who typically benefit from circuit breakers do not itemize their federal income taxes, so this form of property tax relief is usually not offset by increases in federal income taxes. (By contrast, property tax cuts for wealthier taxpayers will result in a federal income tax hike, since these cuts will reduce the amount of state tax that wealthy taxpayers can write off on their federal tax forms).
- Because circuit breaker credit amounts vary with income, the use of these credits introduces an “ability to pay” criterion that the property tax lacks. Circuit breakers identify the individual taxpayers for whom property taxes are most burdensome and reduce their tax to a manageable level.
As you can see a circuit breaker is vastly different from a cap and our politicians and media do us all a disservice when they use the two interchangeably.