Florida Property Tax Reform Debate Continues

If you have followed this blog, you will know that the Sunshine State is in the midst of a huge debate on the issue of property tax reform. Proposals range from eliminating the property tax on homeowners to merely scaling back the property tax. Both would be funded by hikes in the state’s general sales tax. (Florida has no individual income tax.) The most recent news from the Sun-Sentinel:

The Florida Senate early Thursday approved its version of a property tax relief package that rolls back city and county taxes while providing extra tax breaks for first time homebuyers and business owners.

The vote sets the stage for the House and Senate to immediately begin working out their differences over how to address a brewing property tax crisis that led hundreds of homeowners from across the state to protest outside the Capitol earlier this week.

The House plan, passed Wednesday, calls for a major cut in local government property taxes and would let voters decide if they want to eliminate property taxes in exchange for an increase in the state’s 6 percent sales tax. The House plan could ultimately lead to a 2.5-cent increase in the sales tax, making it the highest state-mandated sales tax in the country. But House leaders are predicting homeowners could ultimately save $35 billion over the next five years.

The Senate, which unanimously rejected the House package, calls for a more modest property tax rollback but would let voters decide whether first time homeowners should get an additional $25,000 homestead exemption, for a total of $50,000, and businesses should get a $25,000 tangible personal property exemption. A Senate portability plan would also allow longtime homeowners sell their homes and move to a new house without a major tax hit. Tax savings have been estimated at $11 billion.

Unfortunately, it appears to be politically popular to give special property tax cuts that disproportionately benefit existing homeowners, while not cutting taxes on commercial property in an equal fashion. These types of plans that cut property taxes greater for homeowners than for commercial property, including landlords, merely provide windfalls to current homeowners at the expense of renters and those who disproportiately consume retail sales items and others disproportionately harmed by the taxes on business, like wage earners and the owners of non-housing capital.

Also, because renters are often low-income earners who are liquidity-constrained or who are often less stable in terms of location (thereby making renting the optimal decision), any shift of the tax burden away from homeowners and onto general sales items would likely be a move that will face opposition from those who favor a more progressive tax system at any level of government. Also, unfortunately, this move is another example of a state seeking to export more of its tax burden from its current (voting) residents to out-of-towners who are either tourists (i.e. consumers) or those who own second-homes who do not receive this tax cut.

The proper policy would be to cut taxes equally for all types of property, and not just those owned by individuals that have the most political influence.