- April 23, 2024
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Normally, count us all in when the subject of cutting taxes arises. It’s a no-brainer when anyone in Washington proposes cutting federal tax rates — be it the personal income tax rate, payroll tax rate, estate tax rate, corporate income tax rate, dividend tax rate or capital gains tax rate. Cut them all!
We would take anything that would allow Americans to keep more of what is theirs and what they earned, rather than have it confiscated and sent into the federal abyss.
But at the same time, we’re not all in on a proposed Florida constitutional amendment that would cut property taxes for homesteaded property owners by raising Florida’s homestead exemption from $50,000 to $75,000.
Let’s talk taxes.
Take the Trump plan. It would:
Anything that leaves more of your money in your hands, rather than in the grubby hands of Congress, will boost economic growth. That’s what has occurred historically every time Congress has cut tax rates.
Of course, the other side of this coin is spending. The Trump administration wants to increase federal spending — $1 billion more on infrastructure and $54 billion more on defense — but it hasn’t articulated from where the money will come to pay for it. Remember: He was the one who incessantly lamented how the federal debt has grown to $20 trillion.
To be sure, the economy will grow faster with his plan, increasing the federal government’s tax revenues above what they are now. But that growth won’t be fast enough to cover the increased spending.
That’s always the problem. When Ronald Reagan pushed through his ’82 and ’86 tax cuts, Congress did nothing to cut spending. Boom: Deficits spiked. Same under Bush II.
Trump needs to spell out how he’s going to drain the Washington spending swamp.
But don’t expect that to happen. No one in D.C. — neither Republicans nor Democrats — has the political will to cut spending at levels that make a difference. Want proof? The Obamacare fiasco.
Instead, whiner-in-chief Senate Minority Leader Chuck Schumer prefers the standard, tattered trope: That the Trump tax cuts are nothing more than gifts to the rich — at the expense of the middle class.
For starters, someone please explain the moral justification for a tax system that confiscates 39% of one person’s income versus only 25% of someone else’s income. Just because he has more and is more successful? Punish success? That’s what we do.
Where are the flat-tax Tea Partyers now?
But here is another fact that Schumer and his fellow confiscators never acknowledge or admit: Even if the corporate tax rate, top personal income tax rate and estate tax rate are cut, leaving more (of their) money in the hands of the wealthy, those cuts will help the lower and middle class.
Wealthy people don’t put their money under a mattress. They spend and invest it, which creates jobs and ultimately increases the wealth and well-being of the lower and middle classes.
Imagine the small business owner who sees an opportunity to grow her business. But she’s cash poor and shuns bank debt. She also is taxed at the 39% personal tax rate because her company produces profits of $500,000 a year.
Her tax: $195,000.
Say her tax rate drops to 15%, or $75,000, a savings of $125,000.
What would that entrepreneur do with that extra $125,000?
Invest it to create more wealth — and more jobs.
But Chuck Schumer never sees it that way. He doesn’t understand how economics, entrepreneurism and capitalism work.
After Longboat Key Mayor Terry Gans heard Florida Speaker Richard Corcoran speak in Sarasota before this year’s legislative session began, he remarked that the impression Corcoran left was that municipalities were lucky to be able to exist and should be grateful to the Legislature.
Another way to put it, and it certainly appears this way: Lawmakers often have disdain for county and municipal governments — especially the idea of home rule.
Two instances: 1) The Legislature’s continued meddling in counties and municipalities’ regulation of vacation rentals; and 2) Putting on the state ballot a constitutional amendment proposing to raise the homestead exemption from $50,000 to $75,000.
On the surface, if you’re a homesteaded property owner, your inclination is to say “yes” — raise the exemption, because it would lower your annual property taxes. It’s instinct: Of course, you want to pay less in taxes.
And while that is always our inclination, there are some particular consequences to this that are likely to have adverse effects on the quality of life in your city, county, perhaps even your neighborhood.
Whenever the amount exempted from your property taxes is increased, there is a corresponding reduction in your city and county’s general revenues. This is the primary source of revenue that pays for everything your local government does — police and fire protection, street and sewer maintenance, water, parks, public employees, you name it.
To be sure, we all believe every government entity can be more efficient. But talk to any mayor, city manager or county commissioner in Florida, and they all will tell you one of the most pressing challenges they face is delivering the services taxpayers expect with the revenue sources in their control.
Everything is a tradeoff. Nothing is free. If local taxpayers want more, someone must pay. And the choices to pay are limited: raising your property-tax millage rate; increasing (within state limits) your city or county’s sales tax, a portion of which always goes to the state; increasing fees for services.
But when the Legislature orchestrates an increase in the homestead exemption, essentially you have state lawmakers telling city and county governments: “We’ve decided you’re operating inefficiently, so we’re going to cut your tax revenue.”
Local governments must deal with the consequences, while state lawmakers tell their constituents at election time they voted to reduce your taxes. They benefit, while everyone else — local governments and local taxpayers — suffer the consequences.
What’s more, the ill-consequences of increasing the homestead exemption are compounded. As the late Milton Friedman often said about taxation and subsidies: What you give to one, you must take from another.
Pure and simple, the homestead exemption is a subsidy to year-round homeowners. What you give to them in lower taxes means local governments must take more from someone else. In fact, that exists today: The homestead exemption means that every second-home owner and every commercial building owner (office, warehouse, rental apartments) is paying more than he otherwise would to subsidize full-time resident homeowners.
How fair is this: A part-time resident homeowner pays more for local police and fire services than does a year-round resident homeowner?
When the $75,000 homestead exemption question shows up on the 2018 statewide ballot, you can bet the city and county elected officials will be advocating against it, sounding like they’re progressive tax and spenders. At the same time, many voters will be oblivious to the consequences — other than paying lower property taxes.
If state lawmakers want to be tax-cutting heroes, they might try focusing on their own sandbox. Over the past three years, Florida’s budget has risen from $80 billion to $83 billion. You know there is excess spending in there.
