The incidence and incentive effects of property tax credits: Evidence from Michigan. Public Finance Quarterly 12

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%. Thirty states in the United States provide property tax relief through state rebates or state income tax credits for local government residential property taxes. These so-called circuit-breakers have become a popular form of inter-governmental tax subsidy because they effectively reduce prop-erty taxes that are often thought to be regressive and allegedly are disliked by taxpayers more than most alternative tax forms. Such credits can be targeted to specific groups by an income or wealth criterion and allegedly do not interfere with the assessment process. They have not, however, been immune to criticism