The Incidence and Incentive Effects of Property Tax Credits: Evidence From Michigan

Abstract

The objectives of this article are (1) to present the income and geogtaphic incidence of property tax credits in Michigan; (2) to evaluate the influence of localproperty taxes, local income, and credit parameters on those distributions; and (3) to measure the magnitude of the potential fiscal incentives created by the circuit-breaker program. The analysisis based on a 1% sample of Michigan individual income tax returns for 1976, 1977, and 1978 that includes all the necessary data to calculate circuit-breaker benefits for each taxpayer. It is shown that the credit is a progressive element in the state's tax structure, that the credit primarily favors agricultural counties and counties with relatively higher property tax rates or property values, and that the credit generates large incentives to increase property taxes by reducing marginal property tax cost by about 24%.