Abdul El-Sayed, who is running to be the Democratic senatorial candidate for Michigan, has been pushing an affordability agenda for seniors. Though most of it focuses on expanding traditional social services, it also includes a suggestion to reduce seniors’ property taxes. El-Sayed proposes to freeze property-tax assessments on homeowners 65 and older, with the federal government paying for any fiscal shortfall this causes state and local governments. He says that the tax relief should focus on those living under 200 percent of the federal poverty level, but that all seniors should have access to the freeze “to avoid means-testing complexity.”
El-Sayed’s idea is just the latest salvo in the bipartisan tax revolt. But whatever the origin, federal property-tax relief for the elderly is a bad idea.
Finally, a reason to check your email.
Sign up for our free newsletter today.
In part, this is because the proposal is redundant. The vast majority of states already have some sort of property-tax relief for seniors. Federal subsidies to such programs would end up backfilling state and local government budgets, encouraging them to spend more and raise taxes elsewhere.
Federal involvement in property taxes also would not stop at subsidies. Once the money started flowing, Congress and the federal bureaucracy would have to monitor and manage local property tax administration. Such an effort could end much of local autonomy in America.
But even putting aside the federalism objections, there are simply better ways to secure relief for seniors than a total freeze on assessments.
The most popular argument for age-based property-tax relief is that seniors, who tend to live on fixed incomes, have few options if their taxes go up. Thus, according to the Lincoln Institute of Land Policy, 16 states, including Texas, New Jersey, and Illinois, either allow or require local governments to freeze property taxes or property-tax assessments for seniors. Unlike El-Sayed’s proposal, most of these states have income limits, focusing relief on those who need it most.
Yet assessment freezes can lead to cascading problems and ever-more politicization of the property tax system. Take California’s experience. Proposition 13, passed in 1978, keeps assessments nearly frozen until sale for most of the state’s homeowners. One can find many examples of two almost identical houses with wildly divergent property taxes, merely because one owner has held on to his house for a much longer period.
California homeowners thus have a financial incentive to stay in their homes and keep their low assessments, which depresses housing turnover. This in turn has led to laws that let seniors or other favored groups keep their low assessments after moves and even pass those assessments to their children and grandchildren. A study by Manhattan Institute senior fellow Arpit Gupta and several other researchers showed that California’s property-tax regime has led to fewer young homeowners and more empty bedrooms.
A more common type of relief for seniors is a property-tax exemption or credit, which reduces the tax bill by a set amount. These can range from reducing the assessed value of a home by $50,000 (South Carolina) to providing a credit against the first $1,500 of property taxes (Idaho). Such measures avoid distorting seniors’ decision-making or incentivizing homeowner lock-in.
But a fixed exemption does not address the issue of rising assessments and taxes; the best response to these are tax-deferral laws. Seventeen states, including Florida and Oregon, allow seniors who have trouble paying their property taxes to defer taxes, potentially up until their death, in exchange for a low-interest loan and a lien on the property. Vermont even provides a no-interest loan. A few other states allow but don’t require local governments to offer such deferrals.
Tax deferrals make minimal impositions on local budgets and are directed at seniors who are actually in danger of losing their homes. They allow these seniors to stay in their homes without passing the tax burden on to others. El-Sayed’s own state of Michigan has a limited tax-deferral program for certain types of special tax assessments. If he is truly concerned about seniors staying in their homes, he can lobby the state to expand it.
The rise in property values since Covid has led to a corresponding rise in property taxes, which has angered the two-thirds of households in America that own their own homes. But most proposals on the Left and Right to limit property taxes would only worsen the problems of an already fiendishly complicated system. El-Sayed’s proposal shows exactly why the federal government should not get involved in such delicate local problems.