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• 1. Lamar Taylor  |  December 13th, 2007 at 7:03 am

  I attended the Property Tax Forum the other evening, and I was very impressed with the quality of the presentation as well as the tone of the discussion. During the presentation, there was some discussion about tax fairness, e.g., whether Save Our Homes is fair vis a vis businesses and homeowners, and whether the property tax itself is fair, given that a taxpayer’s property could be put at risk to pay for programs popularly supported by non-property owners. These seem to be legitimate concerns, so I am wondering if members of the panel (and anyone else) could weigh in on the following question: from a tax reform standpoint, what are the most important fairness criteria against which reform proposals should be judged? Is it ability to pay (like the progressivity concept inherent in ascending income tax brackets); is it amount of use (exemplified by toll roads and user fees); is it “flatness” (so that similar transactions are taxed similarly, regardless of taxpayer characteristics)? In other words, what is it that makes a particular tax structure fair?

  Some would suggest that these fairness issues come to a head when local governments rely on a flat sales tax to generate revenue rather than user fees or even property taxes. This view would obviously be based on the notion that, especially in Florida’s generally low-wage, service-based economy, flat sales taxes impose more of a burden on the poor who might need each tax dollar more than businesses and homeowners who, presumably, have the wherewithal to purchase real and, in the case of businesses, personal property. But I would also point out that, should Save Our Homes be repealed, this same fairness concern could then apply to homeowners, long disregarded in regressivity discussions. The issue here would be the extent to which a truly flat property tax would disproportionately affect retirees who live on fixed incomes. Bottom line, I am asking what fairness concerns are out there relating to taxes and which of those does the panel (or anyone else) believe is most important in setting tax policy?

• 2. Liz  |  December 26th, 2007 at 12:14 pm

  Thanks to Mr. Taylor for tossing out an intelligent beginning of an online conversation on the property tax issue. Shortly, I will be posting an audio tape of the December 4 forum as well as notes taken from the dinner and some questions for discussion offered by Dr. Robert Bradley, our panel moderator. I will wait until just after the first of the year though so that all the egg nog wears off. . .

• 3. michael twombly  |  January 7th, 2008 at 11:11 am

  Short and sweet,
  People over 65 have paid their dues and should be entitled to a tax break. reasons are way too obvious.
  Property taxes are out of line with real time property values. All states should re-evaluate at time of sale, not just set an
  arbitary value.
  When property values go down, so should taxes.

• 4. michael twombly  |  January 7th, 2008 at 11:18 am

  Most civilized countries have a value added Tax.
  I you buy a gas guzzling car for $75,000. you pay more for it then the person who buys a VW diesel,
  or any other efficient auto.
  Same for a $5000.00 56″ TV , Pay the Tax
  Very simple and fair.
  If you cjoose to be a mindless consumer, you pay.
  Next a break in this VAT Tax for purchasers of enviromentally efficient products

• 5. Lamar Taylor  |  January 8th, 2008 at 6:31 am

  At the risk of appearing to have a conversation with myself, I will take a stab at addressing the fairness question I posed on December 13th .

  Approaching the fairness question from the point of view of who should bear what portion of the tax (as opposed to addressing the question of whether the property tax is more or less fair than a substitute tax, such as a sales tax), many have argued that too much favoritism has been bestowed upon homestead owners at the expense of businesses (including residential renters who must absorb the ad valorem taxes of their landlords) and non-homestead vacationers. In defense of homesteaders, however, requiring a current, periodic tax payment on homestead property that produces no current, periodic cash income seems unfair on its face. Nevertheless, homesteaders do derive tremendous benefit from local government protection of property rights (clearly police and fire protection are direct examples of local government property rights stewardship, but services too, such as water and sewer service, good public schools and growth management protection also add to the value of homeownership). And there is much merit in the assertion by Florida TaxWatch that unless those costs are internalized by homesteaders, they will have little incentive to weigh in politically on taxing/spending decisions of local governments. So despite the cash flow mismatch, it is appropriate that property tax reform should to some degree reduce the advantages of homesteaders over non-homesteaders to engender more vigilance on the part of homesteaders over the spending habits of their government (who are often spending to placate the demands homesteaders anyway).

  But to go so far as to remove all protections of Save Our Homes as has been advocated by some seems to me to go too far. From a fairness standpoint, there should be some consideration of the ability to bear the tax (or at least ability to bear the timing of its payment), even in (I would say especially in) the homeownership context.

  Therefore, instead of eliminating Save Our Homes, it seems to me the notion should be expanded to something like a “Save Our Property” amendment, where there is a limit to annual tax increases that will provide some certainty for all who will have to pay the tax. The annual increase could be capped at some percent of increase (5%, 10%, 15% whatever), regardless of the valuation adjustment of the underlying property. (Note that the percentage rates of increases are included for illustrative purposes only, I have no idea what they should actually be in order to adequately fund the services provided by local government, only that they should be higher than the rate of inflation—these are caps, not automatic adjustments—and, for reasons discussed below, different for homestead owners and non-homestead owners). In this way the uncertainty surrounding the amount of the annual tax bill that disincentivizes the purchase of property by businesses and non-homesteaders will be mitigated, if not wholly removed.

  However, the capped rate of increase should not be uniform. In light of serious timing/progressivity concerns, the rate of annual increase should be less for homesteaders than non-homesteaders, but above the historic rate of inflation. So for example, if historic inflation has run at 3% a year, the annual increase for homesteaders could be capped at, say 4 or 5% per year. In this way, homeowners will now have an incentive to mind the taxing/spending habits of their elected officials because the potential increase in current tax outflows could (unless property owners intercede) exceed the increase in current income (assuming wages and cost-of-living adjustments rise at the rate of inflation). For businesses and non-homesteaders, the annual capped increase would be higher, say 8 to 10%, in recognition of the fact that business and rental property should be generating the current cash flow to fairly match the current tax obligation.

  If there continues to be a huge uproar over the disparate treatment between homesteaders and non-homesteaders, then the difference in tax burden could be made up by the homesteaders upon disposition of their property, much like a capital gains tax. For example, if taxing a homestead at 5% per year instead of 10% per year resulted in $X dollars of untaxed value appreciation in the homestead property, then that value could be taxed when the homesteader sells the property (or converts it to business use). In this way, at least there will be some matching of cash flow income to cash flow tax liability. This proposal would likely be hugely unpopular, however, since it is the antithesis of the portability measure to be voted on later this month.

  Finally, there is a segment of the population who will truly face economic hardship when confronted with even the capped rate of increase in the property tax. Some would say that this is healthy in a free-market economy because it keeps property utilized at its highest and best use. Further, the argument goes, these folks are not really worse off because they should be able to sell the property for the increased value and take their gains to a more affordable area of town. Despite these points, the psychological impact of dislocation due to gentrification is significant, and, in my mind, cannot truly be compensated by the economic gains from selling the property. As such, there ought to be a homestead exemption or some similar form of relief to those whose income levels demonstrably cannot support even the capped rate of increase. Maybe in this case, the recapture tax discussed in the previous paragraph would be a fair compromise—at least a recapture tax that puts the low-income homeowner back in the same position any other homesteader would have been upon disposition of the property.

  While the above proposal is not perfect, (it’s not even wholly original—most of the above points have shown up in one form or another in previous tax reform proposals) , it does, in my mind, at least, satisfy a number of key issues: it balances the economic disincentive of the property tax with certainty regarding its impact, it provides some fairness between those whose property generates current income to pay the tax and those whose property does not , but nevertheless receives significant benefit from the public services provided by local government, and it hopefully balances the cost internalization arguments of all the Save Our Homes opponents with progressivity protections for those who cannot bear either the timing or the amount of the tax.

  But . . . it is also starkly different from the proposed Constitutional property tax amendment to be voted on January 29th. However, I have posed the above arguments to address property tax reform, whereas the impetus for the January 29th vote is property tax relief. Regardless of the outcome of that vote, maybe the above issues can bubble up to the surface again to be considered more deliberatively. I’ll be sure and keep my fingers crossed.

• 6. Liz  |  January 8th, 2008 at 11:16 am

  Lamar,

  I’m seriously juggling today for the big “Dinner at the Square” tonight, so I don’t have time to jump in now, but property taxes are number one on my list after dinner tonight.

  I will put a link up on the front of the site for people to weigh in on this property tax post. We’ll try to have a real discussion.

  You’re just ahead of the curve. . .

• 7. Lamar Taylor  |  January 9th, 2008 at 7:05 am

  As it turns out, I was not having a conversation with myself, given Mr. Twombly’s earlier comments. In response, I am not sure I’m convinced that the over-65 crowd is entitled to a break solely on the basis of age. No disrespect is intended here, as I truly hope to join that crowd one day (would love to be able to graduate to the over-95 crowd), but for the sake of conversation, assume that there are some services provided by the government that everyone can agree are necessary—say police and fire protection. Those services are provided to every individual for as long as he or she lives. In that case, it is fair that the cost for those services be borne by citizens throughout their lives and not just up to a point.
  That said, however, senior citizens do face certain unique pressures when it comes to uncapped tax liabilities, especially tax liabilities that are a function of forces outside their control—like property values. The obvious example is the fact that many retirees live on fixed incomes (or at least a fixed amount of income producing assets); therefore, taxes that are generated from factors independent of behavior are difficult to incorporate into their personal budgets. Exposing this group to uncertain increases in tax liabilities through a wholesale elimination of the Save Our Homes protection doesn’t seem quite right to me. But again, maybe this issue should come down to more of an ability to pay question, where the Save Our Homes protection is preserved for those falling within a certain annual income level, rather than an age threshold.

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