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Daniel Pareja's avatar

Asset-based means tests, particularly ones based on real property, can in some ways be worse than income-based tests.

In all cases, of course, policymakers should be careful to ensure that there's never a METR above 100%, though having a plethora of means-tested credits can make the rate get uncomfortably close to that.

The problem with asset-based means tests, though, is that it is much harder for the asset owner to control the value of the asset. At least with income it is generally possible to have some amount of control over how much you make: you can do overtime, seek a better-paying job, or pick up part-time employment after your regular employment. (All of this comes with quality-of-life tradeoffs, though, of course, and there was that case study done by one of the US Federal Reserve branches showing that a single mother of one child in DC ends up, after cash and cash-equivalent benefits, not seeing any substantial difference between making around $10,000 and $60,000 yearly, as I recall.)

But controlling the value of a home, and especially that part of it which comes from the land on which it rests, is often beyond the capability of the homeowner to control. A homeowner can, through no action of their own and with essentially no way to get out of it, see the value of an asset-based benefit (such as the homestead exemption) decrease. This makes it harder for families to manage their budgeting, not knowing what their property tax bill will look like because of the possible loss of that exemption, as you note in the article, which in a time of rising prices and stagnant remuneration is something that should be of significant concern to policymakers.

I will freely admit that I don't know what a good answer to this problem would be. California's notorious Proposition 13 was an attempt, but it has resulted in numerous negative effects and is likely not worth attempting elsewhere. A Singaporean model where the government manages housing stock with an eye both to ensuring adequate housing for a growing population and controlling the rate of appreciation in value of existing housing might be worth considering.

Midwest Safety on YouTube's avatar

This was quite good.

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