For nearly 45 years, Proposition 2 1/2 has shaped the financial landscape of Massachusetts municipalities. Enacted in 1980, this landmark law restricts how much cities and towns can raise property taxes each year. Critics have often debated its merits, but the simple truth is this: Proposition 2 1/2 has proven highly effective. It has given residents predictable property tax bills, maintained local control, and promoted responsible budgeting. The enduring presence of this law, with no significant changes, reflects its success and the balanced approach it provides to municipal finance.
Boston Mayor Wu disagrees. She recently suggested that it be repealed. This law has often been seen as a political third rail, and few notable politicians have suggested tinkering with it. Wu, however, has nothing to worry about, as she runs unopposed, and her suggestion aligns with her high-tax philosophy. I doubt her position will gain much traction, and frankly, it should not. But it is still worth talking about.
At the beginning, let’s recognize the obvious: the 2.5 percent cap is arbitrary. There’s nothing special about the number itself; economists or actuaries didn’t set it. But sometimes, policies succeed not because they are perfectly crafted, but because they strike a practical balance. Whether by luck or foresight, the 2.5 percent cap has kept property tax growth in check, ensuring communities can fund essential services without overburdening homeowners. The cap has introduced at least some discipline into municipal budgeting.
A common critique is that the cap doesn’t keep up with inflation. While this point deserves consideration, it overlooks several essential realities. Property taxes are not the only source of municipal revenue in Massachusetts. Cities and towns benefit from state aid, local fees, and other income streams, which help cushion the impact of rising costs. Moreover, the 2.5 percent limit applies only to the prior year’s levy. Revenue from new growth, such as new homes, businesses, and improvements, is not capped. This means communities almost always expand their tax base by well more than 2.5% annually, often by 4 to 5% in reality.
Wu and sometimes others suggest raising, eliminating, or tying the cap to inflation. While these ideas may seem reasonable at first glance, they come with serious risks. It is almost certain that any adjustment would be upward rather than downward. Sudden increases in property taxes would disproportionately affect those who can least afford it, namely seniors, working families, and residents on fixed incomes. We know this because real estate taxes are inherently regressive; they do not consider a taxpayer’s ability to pay. Removing or weakening the cap could cause unpredictable spikes in tax bills, jeopardizing the financial stability of households across the Commonwealth.
It’s easy to forget that not everyone can absorb higher taxes. For many, their home is not just a place to live, it is also their most significant financial asset. Proposition 2 1/2 protects vulnerable residents from being priced out of their communities by runaway property tax increases. By keeping growth predictable, the law helps ensure a wide variety of residents can continue to make Massachusetts home.
It is important to remember, Proposition 2 1/2 is not a straitjacket. The law allows for voter-approved overrides, giving communities the power to increase taxes when necessary and justified. This safeguard ensures that local priorities are respected and that residents have a direct say in major fiscal decisions. Overrides are not granted lightly, nor should they be. They require clear public support and open debate, providing both flexibility and accountability in municipal finance.
After nearly 45 years, Proposition 2 1/2 remains in effect because it works. The 2.5 percent cap may be arbitrary, but its effectiveness is undeniable. It promotes prudent budgeting, safeguards vulnerable residents, and honors the voters' choice. While no policy is flawless, the alternatives carry much greater risks. Proposition 2 1/2 has, in many ways, established a stable basis for real estate taxation. It remains a practical law that should not be altered to satisfy the political desires of Mayor Wu and others. Any modifications should be carefully evaluated before they are enacted.
