The Vertical and Horizontal Equity of Property Assessment Caps

• Published date: 01 September 2023
• DOI: http://doi.org/10.1177/0160323X231168613
• Author: Mary O. Borg,John Rody Borg
• Date: 01 September 2023
• Subject Matter: Original Research General Interest Articles

https://doi.org/10.1177/0160323X231168613

State and Local Government Review

2023, Vol. 55(3) 213 –234

© The Author(s) 2023

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DOI: 10.1177/0160323X231168613

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Original Research General Interest Article

Introduction

The property tax is the primary revenue source

for most local governments. In fiscal year 2019,

property taxes made up 31% of total U.S., state,

and local tax collections, and 72% of local tax

collections nationwide (Cammenga 2021).

When a revenue source is this ubiquitous, it’s

important to understand who’s paying the tax,

and if the burden of the tax is distributed fairly.

Assessment caps can significantly affect

homeowners’ tax burdens. California took the

lead in placing caps on property tax assessments

in 1978 with the institution of Proposition 13.

Since that time many states have followed suit.

In 2020, 18 states plus the District of Columbia

had caps on the amount that assessment values

can increase in a year (Walczak 2020). In 1992,

voters in Florida passed the Save Our Homes

(SOH) Amendment that limits property assess-

ment increases to 3% per year or the annual

inflation rate, whichever is lower. In 2007,

Florida voters passed another amendment that

made the amount of SOH savings portable.

Property owners can now transfer the difference

between the market value and the assessed value

1168613SLGXXX10.1177/0160323X231168613State and Local Government ReviewBorg and Borg

research-article2023

1Department of Political Science and Public Administration,

University of North Florida, Jacksonville, FL, USA

2Public Policy Institute, Jacksonville University, Jacksonville,

FL, USA

Corresponding Author:

Mary O. Borg, Department of Political Science and Public

Administration, University of North Florida, #1 UNF

Drive, Jacksonville, FL 32224, USA.

Email: mborg@unf.edu

The Vertical and Horizontal

Equity of Property

Assessment Caps

Mary O. Borg1 and John Rody Borg2

Abstract

Do assessment caps make the property tax more regressive? Are they fair to all taxpayers, or do

some groups get more benefit than others. This paper examines these issues using a sample from

the Jacksonville, FL Metropolitan Statistical Area. Regression models are run using housing values

averaged at the census block level and matched to census block socioeconomic and demographic

data obtained from the US Census. Results show that when permanent income is used as the

measure of ability to pay, the SOH benefit makes the property tax fairer, but when current income

is used as the income measure, it makes the tax less fair. In addition, the assessment caps cause

some serious horizontal inequities. For, example, homes in 100% Black census blocks receive, on

average, 6.6 percentage points less value from the SOH benefit relative to their home’s value than

the homes in 100% White census blocks.

Keywords

property tax, horizontal equity, vertical equity, assessment caps, racial differences

214 State and Local Government Review 55(3)

of their properties (up to a maximum of $500,000

in 2021) to another property that they buy.

This has a huge effect on property taxes in

Florida. In 2020, the difference between market

(just) values and assessed values for real prop-

erty in Florida’s 67 counties was over

$313.27 billion (Florida Department of Revenue

2020). Based on the average effective property

tax rate for Florida counties in 2020, this

amounted to approximately $3.95 billion in lost

tax revenue (smartasset.com 2021). Although

policymakers recognize the size and growing

importance of assessment cap initiatives, very

little is known about who is receiving these tax

breaks and whether they are equitably distrib-

uted across different demographic and socio-

economic groups.

This paper hopes to shed light on this issue by

examining both the vertical and horizontal

equity of the SOH tax preference. There should

be no distinction between a tax or a tax savings

in terms of equity: both should face the same

equity principles. Stiglitz and Rosengard (2015)

analyze tax breaks by calling them tax expendi-

tures. They emphasize that anytime Congress or

voters pass a tax preference, it is equivalent to

spending tax dollars (it has the same effect on

the government’s budget as an equal amount of

new spending). Vertical equity measures how

tax rates differ across income groups, and

whether the taxes are progressive, regressive, or

proportional. Our paper examines vertical equity

relative to taxpayers’ permanent as well as cur-

rent income. There is still some disagreement

among economists over which income measure

(current vs. permanent) should be used to deter-

mine the incidence of the property tax. Thus, we

believe our research contributes to the literature

by using both income measures so that compari-

sons can be made regarding the equity of the

property tax relative to both income measures.

The paper also examines the horizontal

equity of the SOH benefit. Musgrave’s (1961)

definition of horizontal equity states that “peo-

ple in equal positions should be treated equally”

(p.1 60). This is interpreted to mean that house-

holds with similar characteristics should bear

similar tax burdens. All else equal, when house-

holds that differ in age, race, ethnicity, or edu-

cational attainment pay significantly different

tax amounts, this violates the principle of hori-

zontal equity. We believe the emphasis our

study places on horizontal equity, especially

regarding race, is an important contribution to

the property tax literature. It is especially rele-

vant given the recent national attention to

the problem of racial differences in property

appraisals (Narragon et al. 2021; Kamin 2020;

Mock 2020, 2021; Perry, Rothwell, and

Harshbarger 2018).

Literature on Property Tax

Vertical and Horizontal Equity

The property tax remains one of the least

understood taxes when it comes to judging its

vertical and horizontal equity. Although the

fairness of the tax can be assessed relative to

the value of the property itself, the fairness of

the tax cannot be assessed relative to the char-

acteristics of the people who pay it. One of the

first things a budding tax analyst learns is that

people, not sales, gasoline, or in this case,

properties, pay taxes, so the true incidence of

the tax, rather than the statutory incidence of

the tax, must be ascertained. The property tax’s

statutory incidence is quite straightforward;

the property owner pays the tax. However,

property tax records do not include informa-

tion about the property owner’s income or

socioeconomic characteristics, which are the

factors used to assess the equity implications

of a tax. Characteristics such as the homeown-

er’s current income, education level, age, race,

and ethnicity are missing from the property

appraiser’s website.

Another reason that the incidence of the

property tax is hard to pin down is that in some

cases the property tax may not be viewed as a

tax at all, but rather as a user fee that home-

owners are willing to pay to receive a bundle

of public services that they desire from local

government. Tiebout (1956) was the first to

propose that citizens vote with their feet by

choosing to locate in a community that pro-

vides public goods and services, like public

schools, police protection, parks, and other

amenities, that suit their preferences. In this

case, economists don’t need to study the inci-

dence of the property tax because homeowners