Assessment limits are a type of tax expenditure that limits or places a cap on the amount a property can increase in assessed value for taxation each year. Few states estimate the consequences of the assessment limit they adopt in annual tax expenditure reports. The paper reviews the prevalence of assessment limits in the U.S. and motivations for adoption, and discusses the potential consequences. Then, an empirical analysis estimates the impact of New Mexico's assessment limit on the tax base, revenue, equity, and distribution of the tax burden in Los Alamos County and San Juan County using property valuation data. It is important for state policy makers to systematically consider the costs of assessment limits, both in foregone revenues for local governments and the distribution of property tax liabilities, which could ultimately impact the legitimacy of the tax.
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