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Tuesday, 15th June 2010

Do Property Tax Caps Work? Lessons for New Jersey from Massachusetts

Do Property Tax Caps Work? Lessons for New Jersey from Massachusetts
Source: Manhattan Institute for Policy Research

New Jersey is considering a tax reform called “Cap 2.5,” under which a municipality’s tax levy on existing property could not grow more than 2.5 percent in any year, unless its voters pass a referendum allowing a greater increase. This reform is similar to Massachusetts’s Proposition 2.5, which that state adopted in 1980.

New Jersey lawmakers may therefore be interested in giving serious consideration to Massachusetts’s experience: Did the reform succeed in controlling growth in property taxes? Were property-tax savings merely offset by increases in other taxes? And given that education is by far the largest component of local expenditure, how has the reform affected educational performance in Massachusetts?

Overall, Proposition 2.5 has succeeded in restraining growth of property-tax collections, total tax collections, and per-pupil education spending in Massachusetts. These fiscal successes have not come at the expense of the state’s educational outcomes, which are the nation’s best, consistently outperforming—or at least tying—New Jersey’s results on national school exams. Massachusetts’s advantage persists even within certain traditionally disadvantaged demographic groups.

Massachusetts’s experience suggests that New Jersey, by adopting a similar reform, could significantly restrain tax growth without hurting educational outcomes. The Bay State has shown that it is not necessary to be the national leader in school spending to be the national leader in school outcomes.


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