The Most Antiquated Form of Taxing Is Being Challenged in the Sunshine State

News that Florida legislators are weighing the elimination of property taxes in the Sunshine State makes it an apt moment to reconsider why governments across the country are relying on this antiquated form of revenue collection — a relic of the 18th century.Because changing how things are done requires work and there is no profit motive to push governments to innovate, the public sector is almost always on the trailing edge of technology. The IRS uses a computer language, Cobol, that dates to 1959 and disappeared from the private sector decades ago.Even more extreme, local governments in this country are still largely financed by property taxes. In colonial days, income was often in kind instead of cash, making incomes nearly impossible to accurately determine so that they could be taxed.Yet as nearly all real property was then income producing, such as farms and retail stores — only the wealthy could afford standalone townhouses in those days — property was the best way to gauge an individual’s ability to pay taxes.Even as late as the 1930s only about 10 percent of American families owned their own homes. But with the post-war explosive growth of suburbia, and prosperity generally, today more than 60 percent of families own their own homes. These properties are all income-absorbing, not income producing. Thus they are a poor means of determining a fair tax rate. After all, why should two people with the same income pay very different property taxes just because one lives in a large house and the other a smaller one?Property taxes have other drawbacks as well. They are expensive to assess and collect. Towns need to hire assessors and receivers of taxes. They have to maintain arbitration boards to settle disputes. Property taxes are also often subjective. While a raised ranch on half an acre will be worth about what the raised ranch on half an acre across the street is worth, unique properties present unique challenges. The true worth of a property can really be determined only when it is sold.More, since property taxes are based on property values, not income, changes in economic circumstances — such as retirement — can force a family to sell a home they love and can afford to maintain just because the property taxes are not based on income.And as property values rise, and assessments rise with them, the higher taxes end up becoming a de facto “wealth tax” — a levy on an unrealized capital gain, one that cannot be recouped should property values fall in the future.And while families with higher incomes tend to have larger and more valuable properties, there’s a limit on the upside. After all, how many squash courts and indoor swimming pools can one family use? And some rich families just aren’t interested in showing off their wealth with elaborate spreads. Warren Buffett, worth $163 billion, has lived for decades in a house at Omaha that is assessed at $500,000.So while the bottom quintile of American families pay nearly 4 percent of their income in property taxes, the top 1 percent pays well below 2 percent. One might note in passing that state and local taxes are, in total, highly regressive, not progressive. The bottom quintile pays 10.9 percent of its income in state and local taxes, mostly in the form of sales taxes. The top 1 percent pays a mere 6.4 percent, mostly in income taxes.Eliminating — or at least scaling back — property taxes could prove a spur to curb excessive spending by local governments. If not, what could replace the revenues supplied by property taxes? In the 43 states that have state income taxes, lawmakers would likely aim to increase their states’ rates. Florida, though, is one of seven states without an income tax, which could make it more of a challenge to cover local government expenses like school and police. Nothing will change, of course, unless enough political pressure emerges to force change. In Florida, Governor DeSantis is decrying government levies on property as “the more oppressive and ineffective form of taxation.”In Florida, though, removing these taxes, or even reducing them, would require amending the state Constitution, which requires a super-majority of support from state voters. “We should put the boldest amendment on the ballot that has a chance of getting that 60 percent,” Mr. DeSantis contends.If Florida’s push to reconsider property taxes gains momentum — a big if to be sure — it could prove the first step in a nationwide drive against America’s most antiquated form of taxation.

The Most Antiquated Form of Taxing Is Being Challenged in the Sunshine State

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