A More Sensible Approach to Property Tax Reform?

As the House majority draws its line in the sand on property tax reform, Orlando Sentinel columnist Mike Thomas has a better idea about how to pay for cutting property taxes.

He suggests a three-pronged plan for coming up with the state revenue needed to pay for big property tax cuts:
1) A 25-cents-per-gallon hike in the gas tax.
2) Increasing the tax on real-estate transactions. His ballpark suggestion is a base tax of $750 for each home sold, with a higher tax for more expensive homes.
3) Expand the sales tax base to include services.

There are good things to say about each of these ideas. Taking them in order:
1) You can make a good case that transportation funding in Florida is woefully underfunded. You can also argue (as Thomas does) that we should be discouraging people from driving as much as they currently do.
2) A real-estate transaction tax could raise a fair amount of money, and could be designed in a way that would hit more expensive homes harder.
3) It's absolutely the best single change that could be made to Florida's sales tax, and is much smarter than the House majority's approach of simply increasing the tax rate.

Now for the bad news:
1) The gas tax is regressive. Hiking it would make an already-unfair tax system even worse from a fairness perspective. And the two goals Thomas implicitly has in mind for the gas tax hike (raising revenue to pay for property tax cuts, and encouraging people to scale back their driving) are at cross-purposes with each other.
2) Even if you enact a real-estate transaction tax in the sort of graduated way Thomas is suggesting, it's likely to remain regressive. And this sort of tax has no provision for distinguishing between low-income families who can barely scrape together enough in mortgage payments to own a home and wealthier families for whom a $750 tax is hardly noticeable. The value of the home is something of an indicator of ability to pay, but this would still hit low-income families hard. (A similar idea in North Carolina is riling up developers as we speak.)
3) As with the gas tax, expanding the sales tax base would take the single biggest, most regressive tax Florida state government currently uses and make it an even bigger piece of the revenue pie. It would make the sales tax fairer in the sense that it would treat more (if not all) consumer transactions the same way, but it would do little to mitigate the overall regressivity of the Florida tax system. And from a balance perspective, it's the wrong thing to do. The major source of imbalance in Florida's tax system is that it relies much more heavily than most other states on the sales tax-- and not at all on the income tax. This change would make this imbalance worse, rather than better.

Which leads us to the question of what would be a better approach. Thomas' ideas could be improved on at both ends.

First, the property tax side. Thomas accepts uncritically the idea that we should be doing away with property taxes on homes:

I think property taxes are evil. So like the House, I eliminate them on homes.

Well, that's a pretty big jump. Even when properly administered, property taxes are never the fairest taxes in the world. (And when poorly administered, as in Florida, they're a nightmare that makes pretty much everyone angry and frustrated.) But they're a historically important revenue source, and a stable one-- and there are sensible reform options available to make them work much better in Florida.

What are these options? How about repealing the "Save Our Homes" tax break and replacing it with a targeted "circuit breaker" tax credit for fixed-income families, and maybe expanding the homestead exemption. People aren't talking about these options-- but that doesn't mean they shouldn't be. In any event, Thomas gives up on the property tax far too easily. Reform, rather than repeal, should be the mantra of Florida policymakers on the property tax.

On the revenue-raising side, Thomas has the luxury of not being an elected official, so he's got nothing to lose by bringing up the income tax question. It's a no-brainer from an economics perspective: in pretty much any form you can devise one, the income tax is fairer and more sustainable than any of the revenue sources Thomas comes up with.

It's also worth rehashing the question of whether outright repeal of the intangible property tax was a smart idea. It's technologically easier to administer this tax, in some ways at least, now than it used to be. There ought to be a way to reinstate this tax-- and if Florida does, its property tax base will much better reflect each family's overall ability to pay than it currently does.

This is pie-in-the-sky stuff, for sure. And Thomas deserves kudos for touching not one but two "third rails" of Florida politics in his recommendations. But I think anyone who's coming up with their own ideal plan for Florida tax reform needs to start off by explaining why we shouldn't be talking about an income tax.