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Issue Position: Reforming Property Tax Assistance Programs

Issue Position

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After the state reappraised residential property values in 2008, there were quite a few families that were facing some pretty hefty increases in the property taxes on their homes. So in the 2009 Legislature we passed a bill which mitigated the effect of reappraisal; the result was to very substantially reduce the number of households that would have to pay big increases. In fact, after mitigation, the taxes on about half the residential properties in Montana went down.

But still, there are some families, particularly in the Flathead and in Gallatin County, that are going to have to pay much more. I serve on the Interim Revenue and Tax Committee, and at the hearings we have held since 2009, we have heard many taxpayers report that they are simply not going to be able to afford their higher taxes. In short, they feel they are being taxed out of their homes.

This situation is not new. One of the serious flaws in the property tax is that your taxes often don't have much to do with your income, or ability to pay. In fact, the property tax is regressive, meaning that low income families use up a bigger share of their incomes paying their property taxes than high income families do.

To address this issue, over the years Montana has established a number of property tax assistance programs, all of which provide some assistance to families with low or moderate income. But there are some serious problems with these programs, and they need to be comprehensively restructured.

One problem is that our assistance programs are unnecessarily complicated. There are different rules for qualifying, different income levels that trigger different levels of assistance, different vehicles for providing assistance (some work by income tax credits, others by adjusting property values), and so forth. This is a problem because we usually want our tax system to be as simple and transparent as possible.

It's also the case that all of our assistance programs contain what are called "notch effects." These effects happen when a small difference in income results in a big difference in the amount of assistance received. For example, suppose that a $100 increase in your income takes you from $34,950 to $35,050, but that crossing the $35,000 threshold means that you no longer qualify for $200 of assistance. One problem here is obvious: by earning more, you end up worse off. Another problem is that two families with almost identical income but on either side of the $35,000 line will pay different taxes, which is hardly fair.

We need to consolidate our assistance programs into one simple one in which we don't allow property taxes to exceed a stated percentage of family income. In order to reduce regressivity and avoid notch effects, that percentage cap should rise slowly and smoothly as income rises. In the process we should make sure we don't reduce the ability of local governments to raise property tax revenue (this ability is already pretty firmly limited in Montana law). In 2011 I introduced a bill that would have established this kind of assistance reform. It was voted down by the Republican majority, but I will try again in 2013.


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