Property Tax Deferral: A Proposal to Help Massachusetts Seniors

Massachusetts citizens, like those in other states, face the prospect of inadequate retirement income. Social Security will provide less relative to pre-retirement earnings; 401(k) balances are generally meager; and half the private sector workforce does not have an employer-sponsored retirement plan. At the same time, the number of years spent in retirement has increased dramatically; health care costs are high and rapidly rising; and interest rates are at historic lows. In addition to these nationwide challenges, Massachusetts’ older residents face extraordinarily high housing costs and, as a result, rank among the most disadvantaged in terms of the gap between their required and actual resources. The three big levers to improve the retirement income situation are: 1) encourage people to work longer; 2) provide coverage for employees who do not have a retirement savings plan at work; and 3) enable older households to tap their home equity. States can assist on all three fronts to help individuals use their own resources to support themselves in retirement. They can publicize the advantage to individuals of staying in the labor force and to companies of hiring and retaining older workers. They can institute programs that require employers without a retirement plan to automatically enroll their workers in an Individual Retirement Account. And they can offer a program of property tax deferral that will enable homeowners to use some of their home equity to augment inadequate retirement income. This brief focuses on the third option, exploring one possible approach to property tax deferral that uses Massachusetts as an example. The discussion proceeds as follows. The first section describes the nation’s retirement income challenge and the particular problem created by Massachusetts’ high housing costs. The second section describes the major existing programs for homeowners’ relief in Massachusetts: two that cost the taxpayer and one that allows low-income homeowners to help themselves through limited property tax deferral. The third section describes a proposal for a new statewide program of property tax deferral that would be open to all homeowners. The fourth section addresses likely utilization and startup costs before the program becomes self-financing. The final section concludes that a comprehensive property tax deferral program offers enough promise to at least be tried as a pilot.