April 05, 2006

Florida's Tax Policy Shell Game

It's the ultimate tax policy "shell game." Identify a tax policy problem--for example, fixed-income seniors whose property taxes are growing faster than their ability to pay them--that everyone agrees is a bad thing. Then come up for a "solution" that has nothing to do with the problem, but instead lavishes big tax breaks on the wealthiest homeowners of all ages.

Florida did it more than a decade ago with their melodramatically named "Save Our Homes" property tax cap. It took a while, but people are figuring out that they've been taken for a ride. Check out a great editorial from the St. Petersburg Times here.

"Save Our Homes" is an assessment cap, which means it limits the amount by which a home's taxable value can grow each year. Florida's cap is 3 percent or the rate of inflation, whichever is lower. So if your home's market value increases each year faster than inflation (a pretty good bet for Floridians living in most coastal areas), a gap is created between what your home is really worth and what it's worth for tax purposes. And that gap gets a little bit bigger every year. Of course, newly built homes get no immediate benefit. And when homes are sold, the taxable value resets to equal the market value.

This leads to the sort of inequity that is now being routinely cited in Florida papers, where two neighbors' homes are worth the same amount but they pay very different amounts of property tax.

One unintended consequence of this inequity is that when you sell your house and buy another one in Florida, you lose your tax break. Losing a poorly targeted tax break is maybe not the worst thing in the world, but some Florida lawmakers are very, very worried about this.

One boneheaded, but entertaining, solution being bandied about right now would let people take their accumulated tax cap benefits with them when they sell their home and buy another one in Florida. So if you've lived in your home for 30 years, and its market value is $500,000 but the tax code says it's worth $300,000, your tax benefit from the cap is $200,000. When you buy a new home, whatever it's worth and however rich you are, you get to subtract that $200,000 from the market value of the home.

The Times editorial board, to its credit, recognizes that this is more of the same shell game:
The elderly widow is being invoked again, this time because she is supposedly trapped in her home for fear of higher property taxes even if she moves to a smaller home. Yet the tax break is being offered, again, without regard to ability to pay. So wealthy widows, or wealthy homeowners, would reap the benefit...If lawmakers truly were concerned about elderly widows on fixed incomes, they would fashion a constitutional amendment targeted only at them.
Let's hope state lawmakers can be this level-headed in an election year.


At 7:14 PM, Anonymous Kay said...

We lived in Florida for six years and were beneficiaries of this process. We were stunned when we sold our home and heard what they buyers' tax bill was! We're now in Texas, which has its own property tax issues, but at least we know what to expect if we move. I've noted your post here in my own blog entry here.

At 5:34 AM, Anonymous Baby Boomers said...

My husband and I are thinking of moving to Florida where he has a job opportunity. The problem is we own a home in Wisconsin. We may never be able to own in Florida because of the blatant tax inequity and rediculous inflation. A much smaller and lower quality house without a basement will cost twice as much and double the property tax. Does Florida intend to keep people from moving to their state or becoming permanent renters? I like the idea of a cap but allow the cap to extend across state lines. We have been property owners for 15+ years.

At 12:42 PM, Blogger Wayne said...

I live in Ohio and own property in Florida. The concerns being expressed are the topic of my PhD dissertation, which I plan to finish in 2007. I am trying to approach the subject objectively as a scholar and avoid the emotional aspects that are found in newspaper accounts. However, the articles such as those in the St. Petersburg Times are presenting considerable factual information. Rather than focusing upon the rather obvious discrimination against out-of-state property owners, I am focusing on the question of whether Save Our Homes has any impact on equity within the qualified group. If it does, then a basis exists to challenge Save Our Homes as unconstitional under the equal protection clause of the Florida constitution. My dissertation is intended to provide the research needed to make such a legal challenge if, in fact, the analysis shows statistically significant inequity related to Save Our Homes.

At 5:12 AM, Anonymous Anonymous said...

Better Hurry or the vast differences will have becomes so great that you will NOT be able to own rental property, 2nd homes, or businesses in Florida as you support all the Homesteaded and (Same Class) Save Our Homes property owners by paying what they don't pay!! What a farce they have become- Should be "Sink Our State" and "Let someone Else Pay My Taxes"!

At 5:13 AM, Anonymous Anonymous said...

Better Hurry or the vast differences will have become so great that you will NOT be able to own rental property, 2nd homes, or businesses in Florida as you support all the Homesteaded and (Same Class) Save Our Homes property owners by paying what they don't pay!! What a farce they have become- Should be "Sink Our State" and "Let someone Else Pay My Taxes"!

At 9:07 PM, Anonymous Anonymous said...

You would be wise to stay put and NOT move to Florida where the Property Tax is totally out of sight!!! These tax monger politicians down here want to see people lose their homes, especially senior citizens that cannot afford to pay their property tax bill. There will be many a sale on the courthouse steps for "nonpayment of taxes" in Florida. And...ther are small businesses closing up across Florida because of HIGH property taxes.
I have lived in Florida for over 30 years and now I cannot afford it after retirement---mainly because of property taxes. Theft by the Counties against the homeowners.

At 2:33 PM, Anonymous Anonymous said...

i think its wrong to let the hard working people that pay taxes all there life and then rise them even more when its time for them to retire.

At 8:55 AM, Anonymous L Hayward said...

Anyone interested in getting involved w/Constitutional Amendment to cap gov't spending for all properties not just homesteaded please email me at lhayward@tampabay.rr.com - The real problem is that the local gov'ts have gotten greedy w/ the raises in valuations and therefore the taxes assessed. The county commissioners are supposed to lower the millage as the valuations increase but have not.

At 9:58 PM, Blogger David in tampa said...

I bought my house in january 1990 for 43,900
in 1995 my house was aprased and taxed for 48,000
1n 2000 my house was aprased for 103,000 and taxed on 99k

I had florida homestead from 1991 so why so much in 2000 as a 3% cap would of put it at 55,645 not 99k

so why simple every home repair and improvment adds there full value to the home value on top of the cap

So the windows and roof I replaced which were much more energy efficet and well exceded the dade county hurricane requirments as well as replacing 2 3.5 gpf toilets with 1.6 tolets total costs went on top of the cap dollor for dollar

however my house from 2000 to 2006 has gone from 103k to 240k so if I did not have save our house now I be on the street as my personal income went down by 53% after my electronic eng postion was outsoureced to asia in 2001 so there was I could aford almost 140 percent raise in property taxs as I can barly aford my masters degree classes which I taking one at a time due to finances.
one thing I do agree on thought is the reason they should of also caped state spending to 3% at the same time as I do not know were the money is going as my own caped taxs have tripled but the only however the only intresture improvment or even maintance i seen in from 1995 is verizon running fios however the roads around my house need repared and the ditchs need cleaned

what is realy needed is goverment who is in control as there no reason for such a high millage on new properys that outprice many other states in tax loads

At 4:24 PM, Anonymous Anonymous said...

The quiet exodus!!1
After a short period of time -- the "powers that be" will scratch their heads and wonder "Where did all the people go?" "Where did all the small business' go?" Where did the long time Florida character go? Where did all the young families go? Why is the school population going down? Why are the produce stands gone? Why are the neighborhood restaurants gone?
Where are the elderly? Where are the snowbirds who spend money - spending it now? Why are there so many rental properties - Rent too high (taxes/ins.)
Why are there less fishing boats - no marinas to launch/no bait shops or it's too expensive. My neighbors keep moving - can't afford to stay after all. Why do the little shops keep changing - income can't pay the high over head (rent=taxes/ins.)ie. ice cream cones are $3.00, sandwich is $7.00, drinks are $7.00 etc.

There is much less extra money to spend at local business' because of the government's greediness to spend and not budget - no cap on them or accountability.
Where has everyone gone? Who in the government
cares? They get elected, spend , and leave with nice retirement funds they voted for themselves and a different social security fund - unlike ours.


At 12:33 AM, Anonymous Anonymous said...

I am 52 years old and I was raised in Florida. After the USA landed on the moon all of the government contracts were pulled from the space program and all of the engineers and their families fled out of Florida to find work. I grew up with great schools and a great neighborhood. In 1968 we could not find a buyer for our waterfront property. My family hung onto it all of these years. I have been paying the extremely high taxes as an out of state property owner. My husband and I are academics and live in Wisconsin. We would like to move to our home there within the next few years. Our property taxes went up $400/month more than what we are already paying. We want to come to Florida and contribute to the academic culture in the area.
The schools in Florida are not rated highly when compared with the nation. We are people who would love to come teach and volunteer. We are not rich a (in money).
It has come to a point where we are going to have to sell the property that we have been paying toward for so many years. We are a few years from our retirement and we simply will not be able to fulfill that dream.
I believe if the attitude of the state officials continues to be narrowly focused on money, the state is going to suffer immensely.
I would like to ask where all the money is going. It is all so very sad.

At 10:11 AM, Anonymous Anonymous said...

this SOH is really a form of price control and a varient of new york city rent control which had the effect of significently negatively impacting on the housing market.It took political guts for the ny state legislature to begin phasing it out. these notions of price control are all very liberal causes or fixes but the practioners of it in florida claim to be hard core conservatives. STRANGE!


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