An Analysis of the Impact of Property Tax Credit/Rebate Programs on State Revenues and Tax Equity
Date of Graduation
Doctor of Philosophy in Business Administration (PhD)
Lloyd Seaton, Jr.
Second Committee Member
Third Committee Member
shifting tax burdens, property tax, credit, rebate, motor fuel tax
The primary aim of this study was to examine the impact of shifting tax burdens between income groups following the implementation of alternative real residential property tax credit/rebate programs. Specifically, the objectives of this study were:
1. To analyze the real residential property tax level and vertical equity between income groups before and after implementing alternative credit/rebate programs;
2. To determine the potential total revenues lost to the state after implementing a credit/rebate program;
3. To analyze the tax level and vertical equity of three state-levied taxes—the personal income, sales, and motor fuel tax— and the property tax before and after the rates on the state-levied taxes are increased to make up for the reduction in revenues sustained following the implementation of the credit/rebate program; and
4. To analyze the results of the study and make recommendations useful to policy makers when considering the relative impact and legislation of real residential property tax credit/rebate programs.
The data used in the analysis were obtained primarily from the Bureau of the Census Public Use Sample, one percent subfile covering the State of Arkansas, the Arkansas Department of Finance and Administration, and the Internal Revenue Service. Weighted average and simulation modeling techniques were used to determine the real residential property tax level and vertical equity between groups (homeowners and renters) before and after implementing alternative property tax credit/rebate programs. The property tax credit/ rebate simulation models were also used to calculate the potential total reduction in revenues sustained by the state following implementation of a credit/rebate program.
The property tax in Arkansas was shown to be regressive through the $10,000 income level; a result consistent with prior property tax incidence studies. The property tax credit/rebate programs simulated included three variations of the Vermont credit/rebate program and the Minnesota credit/rebate program. The estimated costs for the programs ranged from approximately $3.5 million to over $18 million.
The credit/rebate programs transformed the regressive property tax into a proportional or mildly progressive tax through those income classes receiving relief. It was found that a program's cost was directly related to its features. More extensive features of a program result in greater cost. As a result, a greater amount of relief was extended to a larger number of income classes.
It was assumed that the reduction in state revenues, sustained after the adoption of a property tax credit/rebate program, was entirely made up by increasing the tax rates on one of the three state-levied taxes. Simulation models were constructed for each of the three selected state-levied taxes in order to determine the effect of implementing credit/rebate programs. The assumption that only one state-levied tax be increased was determined to be too restrictive.Therefore, all three state-levied taxes were increased simultaneously using three alternative tax rate increase combinations.
Generally, households at the lower end of the income scale exhibited lower net tax burdens than they had prior to the implementation of the credit/rebate program. The more extensive the relief provided by the credit/rebate program, the larger was the reduction in net tax burdens over a greater number of income levels. Although net tax burdens were reduced at some income levels, the burdens at the remaining income levels were increased. Thus, the analysis indicated that net tax burdens were increased at some income levels that were intended to receive relief from the property tax credit/ rebate program. Therefore, the final impact of a credit/rebate program may be contrary to the program's primary intent, that is the reduction in tax burdens of certain low-income property owners.
Rogow, R. B. (1976). An Analysis of the Impact of Property Tax Credit/Rebate Programs on State Revenues and Tax Equity. Graduate Theses and Dissertations Retrieved from https://scholarworks.uark.edu/etd/3331