What is the "Property Tax Cap"?

The correct choice regarding the "Property Tax Cap" is a legally mandated limit on property tax increases. In Michigan, this system was established under Proposal A in 1994. It specifically limits the annual increase in a property’s taxable value to the rate of inflation or 5%, whichever is lower. This means that even if the market value of a property increases significantly, property tax increases are constrained to ensure that taxpayers are not burdened with excessive tax bills due to rapid value increases. The objective of this cap is to maintain affordability for property owners while ensuring municipal revenues are stable and predictable.

The other options do not capture the essence of the property tax cap. A limit imposed by municipalities would suggest a local control that is not consistent with the state-mandated nature of the property tax cap. Likewise, a cap set by property owners does not reflect the legal structure established by state law. Finally, describing it as an informal guideline for taxpayers fails to recognize its formal and binding nature as a legal statute, which is critical for understanding how property taxes are assessed and increased in Michigan.