Property Taxes in Massachusetts

Although tax revolts all over the United States give evidence to widespread concern over rising property tax bills, the situation is particularly acute in New England. Local governments (including county, town, and school districts) are more reliant on the property tax in New England than they are in other regions of the United States.

In Massachusetts 73 percent of the locally raised revenues (excluding state and federal aid) come predominantly from the property tax (Figure 7). By contrast, in the United States as a whole, only 47 percent of locally raised revenues come from the property tax, and more than 50 percent of locally raised revenues come from other taxes and charges.¹¹

As a result, changes in the property tax base are even more important to local officials and taxpayers in Massachusetts than they are to people in most other states outside of New England.

Over time, the property tax has become particularly burdensome to Massachusetts households with the least ability to pay.

The tax roll was once a list of most of the manifestations of each person's income and wealth--including real estate and other property, such as bee hives, watches, pianos, merchandise, and equipement. According to General Walker, who wrote about the property tax in 1888, "the New England people of the old stock were a saving people. Whatever was earned, beyond the necessaries of life, was turned into property, and presumably the most rmunerative kind of property. Property thus became an index of ability, and as such formed a just basis of taxation."¹²

Since then, the tax base has lost its close connection with income and wealth. Now the property tax is based predominantly on real estate. Because lower income households spend a much higher proportion of their incomes on housing, the property tax takes a higher proportion of their incomes than it does of the households with higher incomes. For this reason, raising the tax rate is a more serious issue for lower income households than for higher income households.

To look at the relationship between the residential property tax and income in Massachusetts, households that owned their homes were ranked according to household income and divided into five groups of equal size. Within each group, the property tax on the primary residence was calculated as a percent of income. In Massachusetts, the residential property tax represents about 7.3 percent of the household income of the 20 percent of the households that have the lowest incomes. This is roughly five times higher than the 1.55 percent of income used to pay the property tax by the households in the highest income group (Figure 8).

It could be said that the residential property tax is even more regressive than the chart indicates. Because property taxes can be deducted from the federal income tax, households that itemize deductions have an effective property tax liability that is lower than that shown in the chart. The deduction would lower the tax liability of the higher income households more than it would lower the tax liability of lower income households because higher income households are more likely to itemize deductions and the savings is greater for higher tax brackets.

Residents of the New England states are particularly concerned about property taxes. This concern is often focused on changes in the tax base because, holding the budget constant, if development swells the tax base, tax bills will go down. Similarly, if conservation decreases the tax base, tax bills will go up. However, in reality, few towns have been able to find development that can increase the tax base without also increasing service costs. The balance between budget and tax base is crucial.

Income and Property Tax Bills

There is a popular assumption that the towns with the most growth, measured either in terms of population or commercial activity, are the most prosperous and that the residents are better off because they have higher incomes. This is not necessarily the case. There is not a strong relationship between the tax base and income (Figure 9). As many people will probably verify from their experience, residents of the cities and towns in Massachusetts that have the most business property often have lower incomes than the residents of more suburban towns.

After adjusting for the variation in per capita income--that is, comparing the tax rates in towns with similar median household incomes--the correlation between growth and high tax rates is still strong. Similarly, the correlation between ruralness and low tax rates is still strong after adjusting for the variation in per capita income.

However, it is important to note that, in general, people who are better able to pay are more willing to spend money on schools and local services. More money is invested per pupil in education in towns in which the residents have higher incomes. To the extent that high income households tend to live in different towns than low income households, children from high income households may be receiving a better public education than children from low income households.

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11. Locally raised revenue is all revenue available to county, town, school and special districts except state and federal aid. It includes the following locally raised revenues where applicable: local property tax, local sales tax, local excise tax, local rooms/meals tax, local income tax, local fees, local charges, interest on local funds, miscellaneous local revenue. In many states, particularly those in New England, local governments do not have the option of raising many of these types of revenues.

12. From "The Bases of Taxation," Political Science Quarterly, vol. iii (1888) p. 6. Cited in History of Taxation in Vermont. 1894. Frederick A. Wood.

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TPL New England Region report, 1999