In Indiana, Republican Gov. Mitch Daniels has succeeded in lowering property taxes on homes to 1% of assessed value. In New Jersey, another Republican, Gov. Chris Christie, has introduced a reform package that would cap property tax increases to 2.5% each year. And in New York, Democrat Andrew Cuomo has just announced his candidacy for governor with a call for a 2% cap on property tax increases—lower than the caps proposed by two of the state's leading candidates for the GOP nomination.
How you think of property caps depends largely on how you think of government. If you see shortfalls in town and state budgets as a revenue problem, you probably think property tax caps are a very bad idea. The best examples here are all those California pols who blame all their state's budget woes on the father of all tax caps, Proposition 13—instead of on their spending like there's no tomorrow.
If, by contrast, you think of budget shortfalls as primarily a spending problem, you see a property-tax cap as a tool to control that spending.
Into this debate now comes a timely study that asks a simple question: Do Property-Tax Caps Work? Released jointly by the Manhattan Institute and the Common Sense Institute of New Jersey, the study takes for its model Proposition 2.5. This was the measure Massachusetts voters approved in 1980, limiting annual property tax increases to just 2.5% of a home's assessed value.
While California gets the most attention, the Bay State cap helped the state shed its hated Taxachusetts label—going from the second most taxed state in the union when the proposition was passed to 23rd today, according to the Tax Foundation. In the study's executive summary, author Josh Barro puts it this way: "Proposition 2.5 has succeeded in restraining growth of property-tax collections, total tax collections, and per-pupil education spending in Massachusetts."
This study pays particular attention to the effect of the Massachusetts cap on public education. As it turns out, Massachusetts does not bear out the scare stories. Despite spending far less per pupil than New Jersey ($12,857 versus $16,163 in 2007), Massachusetts students in almost all demographics achieved better results than their Jersey counterparts.