Aim for tax fairnessA Times Editorial
Published February 18, 2007
As Florida lawmakers gather next month amid the clamor to fix a broken property tax system, they should remember the lesson of Save Our Homes. That one exemption, billed in 1992 as way to keep elderly widows from being taxed out of their homes, has so skewed taxes that every other property owner is coughing up an extra 25 cents on the dollar just to make up the difference.
That's a steep price to pay for a tax break that has ended up mainly benefitting the most affluent homeowners, and the lesson is obvious. Tax exemptions merely shift the burden and, done recklessly, can lead to unintended consequences. Use caution.
"I hate to say it," Rep. Ed Hooper, R-Clearwater, told the Times in today's first installment of For a Better Florida (see story, Page 1P). "But this is probably going to make the property insurance issue look easy."
Unfortunately, many of the fixes already being pushed by Gov. Charlie Crist and some legislators are almost certain to make matters worse.
DOUBLING THE HOMESTEAD. Doubling the basic homestead exemption from $25,000 to $50,000, as Crist has proposed, would do nothing to solve the current inequities and benefit property owners who need the least help. For those who stay put in their homesteads, the basic exemption is already dwarfed by Save Our Homes. So doubling the basic exemption would mainly serve to further shift the tax burden from homes to businesses, apartments and other investment properties. It also would create a crisis for 12 rural counties whose tax rates are at the constitutional 10-mill cap. For them, the new exemptions would translate into lost revenue and, perhaps, fewer deputies and firefighters.
EXTENDING THE EXISTING TAX BREAKS. Save Our Homes has been so generous that homeowners are now asking to take their tax break with them when they buy another house. But so-called "portability" is fraught with peril. Unless it is narrowly tailored, it will only make the disparities greater and is almost certain to raise constitutional issues of equal protection. Crist has even proposed expanding the Save Our Homes tax value limitation to all other properties, which would create competitive disadvantages for new businesses.
CAPPING REVENUES. Few governments - local, state or federal - couldn't afford a little spending diet. But an artificial cap on property tax revenues is a one-size-fits-all approach that ignores the role the state government itself has played. In recent years, lawmakers have cut taxes on businesses and stockholders by pushing the burden to property owners through new local mandates and schools. This year alone, the state's required property tax increase for schools was $1.1-billion, or 17.3 percent, and Crist has proposed adding another $450-million next year. Given that schools represent the largest portion of the property tax bill, lawmakers could cut back there and lead by example. But that would require them to come up with other state sources, such as eliminating some sales tax exemptions, to make up for the loss in revenue.
The trick for lawmakers is to separate the tax hysteria from the tax inequities. Most of the people who have complained at legislative hearings around the state are snowbirds or apartment owners or second homeowners who don't enjoy the Save Our Homes exemption. Their taxes are artificially higher as a result. In fact, the latest Department of Revenue report notes that the tax rate for every single property owner could be reduced by 20 percent if Save Our Homes were abandoned.
Lawmakers aren't talking about removing the exemption, but they can remove pieces of unfairness. County property appraisers, for example, are using different and sometimes conflicting methods to value property. Some value land for its potential use, but others insist on actual use as the guide. The latter is better public policy. This is an opportunity for a broad review of how property is appraised for tax purposes and a chance to develop a fairer, uniform approach.
Over the next few months, the temptation for lawmakers to pander will be great. After all, they get to do so primarily at the expense of mayors and county commissioners who would be left to pick up the pieces. But lawmakers should remember that the real estate market is cooling, which means the rise in property values will slow down and help mitigate some of the differences between those with Save Our Homes and those without. Politicians feel the urge to act quickly here, but time is on their side.