Property taxes often are the targets of anger and frustration, especially when the taxing government allows collections to jump year after year, instead of adjusting rates and assessments to maintain stability.
In Florida, Governor Charlie Crist has announced his support for Amendment 5 on the November ballot calling for swapping property tax reductions with other tax increases. The amendment calls for the Legislature to remove all property taxes levied by school districts by 2010. This would reduce the average property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. bill of a Florida resident by anywhere from 25 to 40 percent.
The amendment states that the lost revenue will be made up in one of three ways: a sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. increase of 1 cent, spending cuts enacted by the state government, or a repeal of sales taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. exemptions on items such as food and religious organizations. While critics argue that the sales tax increase and spending cuts will not completely make up the lost revenue, Crist argues that the lower property tax rates will spur investment and economic growth in the state.
Speculation suggests that this new 7 cent sales tax rate will be extended to cover previously exempted services. For example, funeral services are currently tax exempt in Florida, but if Amendment 5 is passes, a $5,000 funeral service will be hit with a new $350 tax.
As we have stated before, tax swaps are not sound tax policy for three specific reasons. First, local control of schools gets shifted to the state level, harming local autonomy. Second, increasing the sales tax is a more problematic source of revenue and makes the state less competitive in relation to rates found in neighboring states. Third, and most importantly, if the swap means a zero net change in revenue, it won’t actually reduce Floridians’ overall tax burden, as they think it will.
Teachers and teachers’ unions oppose Amendment 5, arguing that the proposal sharply reduces a major source of funding. Some business interests have also expressed opposition, arguing that the higher sales tax rate might cause businesses to move out of the state.
Some proponents of the amendment suggest that it will spur home ownership and the housing industry, I wonder whether creating ambiguity about school funding sources and hiking the sales tax to 7 percent will encourage individuals to buy a house.
Read more about Florida’s tax swap and other property tax proposals here, here, and here.
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