Tax Base Erosion and Inequity from Michigan's Assessment Growth Limit: The Case of Detroit

Abstract

In this paper we examine the degree to which Michigan’s property value assessment growth cap has eroded the tax base and created substantial differences in effective tax rates among residential properties within the City of Detroit. While the analysis focuses on a specific city with significant tax base erosion challenges, it is relevant to other cities in Michigan and across the nation, particularly in states that impose assessment growth limits. Using quantile regression techniques, we examine how an assessment growth cap alters effective tax rate distributions within and across property value groups. Results show that the cap creates a wide range of effective tax rates across properties of similar value (horizontal inequity), and similar tax payments for properties of differing values (vertical inequity).

Keywords: property tax, assessment growth limit, equity, quantile regression

JEL Classification: H710