Suppose a taxpayer faces a federal marginal income tax rate of 24 percent and pays local property taxes of $3,500 per year.

(a) The taxpayer itemizes federal deductions and thus deducts the local property tax (and no other state taxes) in calculating federal income tax. No state income tax deduction for local taxes exists. What is the net after‑tax cost of property taxes to this taxpayer?

(b) Suppose the state introduces an income tax credit for 25 percent of property taxes up to a maximum of $900. What is the taxpayer’s net property tax cost now? (Remember that the state income tax is also deducted against the federal tax.) How much does the net cost fall because of the credit? How much more would this taxpayer pay (net) if property taxes were increased to $4,500?