Will some of us say goodbye to property taxes?

I am an enthusiastic fan of tax cuts. I think it is crucial that government prioritizes its spending and tries to provide necessary services as efficiently as possible. So, I am taking great interest in Gov. Ron DeSantis’s call for a reduction or elimination of property taxes for some Florida residents.

Negotiations are still hot and heavy up in Tallahassee, but the basic outline is the governor and Legislature are proposing an immediate one time $1,000 rebate for all homestead property owners in Florida and putting a measure on the 2026 ballot to phase out non -school property taxes on homestead properties over a period of years. There is also talk of including things like increasing homestead exemptions and putting a cap on annual assessment increases. 

These proposals have pitched a fight between people who pay homestead residential property taxes in Florida and would benefit from these ideas, versus all those who would still have to pay property taxes and local governments who would suffer most of the revenue losses.

How property taxes work in Florida

For those of you who don’t pay property taxes in Florida or don’t pay attention to the detail details, here’s the basics. Property owners pay a locally assessed and locally collected tax on the value of real property. Those dollars go to fund schools for one part of the tax and either the city or county you live in for the other part of the tax. The local government determines the value of the property and sets the rate of the tax you will pay. In addition, for properties that are the primary permanent residences, property owners can exempt from the property tax up to $50,000 of the assessed value, which lowers the property tax bill.

Pros and cons of property taxes

As taxes go, property taxes are better than most. They are economically efficient because they don’t invite as much evasion and manipulation as most taxes do, nor do they distort people's incentives to invest or spend efficiently as much as do many other taxes. They are also a tax that links who is paying and what they are paying for. Local property owners consume local services and local schools, and property taxes go to pay for those. Other taxes are not spent in any way directly related to who pays the tax. 

And a well-designed property tax can be very transparent. Sarasota County, for example, has clear property tax statements that do an excellent job of explaining what property owners are paying, and what they are paying it for, and what proposed changes in tax rates would mean for what they pay.

The downside of property taxes is, first and foremost, they are levied based on valuation of property, which is simple, but doesn’t make a lot of sense. An expensive beachfront home does not require more schools, roads, police, or fire services than does an inexpensive old one-bedroom house inland. So, there’s no clear reason why they should pay radically different property taxes. Also, property values in Florida tend to go up because it’s a desirable location, which means retired folks and others on fixed incomes often seeing rising tax bills, even as they stay in a house they’ve been in for a long time. And of course, they are not consuming anymore services and yet they’re having to pay more.

The good, the bad, and the ugly of Tallahassee property tax proposals

The good things about what Tallahassee is proposing are the immediate proposals to put some money back in some property taxpayers' pockets, reducing spikes in property tax bills for the many Florida residents living on fixed incomes, and lower property taxes going forward, furthering Florida’s position as a low-tax state.

But there are some downsides to the proposed changes. First, this would definitely be a regressive tax cut. Homestead property owners in Florida on average are middle to high income, and these tax changes would keep existing property tax burdens on multifamily housing, which means renters would not get any breaks, even though they tend to be lower income. 

Also, these tax reductions would mean a big hit to local government revenues. School property taxes are protected by most of the proposals, but local governments would likely face a 17% or 18% reductions in revenue. If local governments were reducing spending, and that created space for reducing property taxes, that would be great. 

But that is not the case. Indeed, it is unlikely they would simply cut spending by that much, but rather they will raise other taxes that they control, such as sales taxes, business taxes and tourist taxes. All those taxes are more distortionary than property taxes and will hit residents in ways they don’t expect.

In addition, there are some ugly uncertainties about proposed property tax cuts. We don’t yet know what the Legislature might pass and the governor might sign, nor do we know what will be on the ballot in 2026 if the governor gets his way on that. 

Also, it’s unclear how this change will affect housing. In general, when you reduce property taxes, it boosts the value of homes because people will pay more for homes that have lower property taxes, all other things being equal. But that makes it harder for first-time homebuyers to afford a home. And lower property taxes mean local governments will have less incentive to allow new housing to be built, which will further exacerbate the housing shortage in Florida. So, the property tax reductions could benefit some people now but cause a great deal of pain in the future.

In the end, the current property tax reform proposals seem to create as many problems as they solve. Rather than singling out a small percentage of property owners to give a big benefit, the governor and Legislature should buckle down and do comprehensive property tax reform that incentivizes local governments to keep the burden low, base the taxes on the services provided to property owners, provide transparency on tax payments and expenditures, and avoid rising tax payments on properties that are not consuming more services than before.