Property tax is a charge paid on a person’s bona fide or individual assets. This levy does not necessarily change with change in value of the property. A tax cap places a sort of ceiling or upper limit on the amount of tax paid on a commercial asset. Property tax caps have several advantages. One being that, cities are encouraged to efficiently offer services and consequentially practice control in regards to adherence to the financial plan (McGourn, 2010). Secondly, they guard against abrupt increases in property taxes. Thirdly, property tax caps attempt to equate growth in property tax to rise in income as the former is paid from the latter. Moreover, a cap will serve to retain local investors and help to increase their financial competitiveness. Additionally, the state is encouraged to seek other income sources. Last but not least, a cap encourages aid increase thus funds are directed towards providing tax reprieve as opposed to new ventures.
However, property tax caps also bear several disadvantages. For instance, a cap will not efficiently reduce taxes in places where the rate is already soaring. Also, the cap may unevenly benefit the richer folk. Thirdly, a cap may not deal with the source of high property taxes as some of these causes may be beyond the control of the administrators. Moreover, service provision may be sub optimal if at all aid is not provided (Reject the tax cap, 2011). Furthermore, opportunity cost due to provision of aid may lead to the increase in state tax. Without exceptions to liability repayment, caps could result in negative impact on bonding charges. Finally, a cap can stop changes that may be expensive initially but have large advantages in the future.
Though it has been observed that tax caps have various advantages, in reality, effective implementation has proved to be quite challenging. Take the case of Massachusetts for instance, which adopted a tax cap in 1980. Though the cap has reduced property tax without having a negative impact on education, adverse effects have been experienced in other public utilities like maintenance of roads, street lighting etc (Cooper, 2011). Thus there is a need for alternatives to adoption of caps to be sought. These alternatives would serve to reduce property tax without necessitating adoption of a cap.
One such alternative is to avail tax reprieve to individuals. A cap is focused on the overall reduction in property taxes and is not from a person’s point of view. For this to work, the state is interested in ensuring that an individual is not charged more property tax than a given percentage of his income. This calls for adequate public education to ensure that it is understood that the tax relief affects property tax but not overall income tax. In addition, the public ought to be able to look forward to this relief yearly.
Alternatively, a state could consider other sources of income instead of over-reliance on property tax. This could be done through charging of income or sales tax at a local level. This has been found to be effective in various states such as Ohio and New York. Thus a state like New Jersey could benefit a great deal from focusing on other sources instead of entirely depending on property tax (Cooper, 2011). In conclusion, the decision of whether to adapt a property tax cap or not is one that should not be taken lightly. Every state is different and there is a need for adequate research to be done. For example, what worked for Massachusetts will not necessarily work for New Jersey. Most importantly, taxes and tax caps should be implemented in the way that most benefits people across the board.