Another Failure To Look Before We Leap Into A Tax Cut Pitfall
Written by Michael Lewis on November 15, 2007
By Michael Lewis
Tinkering with taxes isolated from economic expertise, as noted in this space last week, can trigger disaster. Without holistic thought, reverberations of change in tax structures can subvert the best of intentions.
That has since been borne out once again as state economists now estimate that Florida’s total property valuation will fall nearly 3% in 2008 — a tumble that could help cities and counties raise tax rates despite last spring’s state legislation designed to roll back rates.
Legislators intended to ease homeownership’s burdens by forcing local tax rollbacks. But the law they passed aims to make local governments set tax rates so that prior taxpayers would pay no more than they had been. If property values fall, however, a government could raise its tax rate and still keep that group’s payments the same.
But while those properties would pay equal taxes from year to year, a rising rate could hammer new developments, which would be taxed more than they had been on track to pay.
Because our flood of new condos and commercial buildings could therefore come onto the tax rolls for the first time at above-anticipated tax levels, local tax receipts would keep rising. State lawmakers never anticipated that.
Meanwhile, business and residential newcomers to a community would also be hit by higher tax rates even as property values were falling.
The assumption in passing the law last spring was that property values, not tax rates, would keep rising yearly, just as they had been.
So the law’s language made it entirely possible for cities and counties that the Legislature wanted to rein in to boost tax rates once again.
That could be healthful or hateful. Despite the Legislature’s prejudices, many of us would prefer that spending come at the county or city level rather than the state or federal level.
But like it or not, it’s now clear that what lawmakers intended — to reduce property tax rates and thus local government spending — could become a tax rate hike that stands intentions on its ear and increases, not decreases, a city’s or a county’s overall take.
Had economists been consulted, they might have spotted this massive flaw in June’s legislation aimed at rolling back local spending.
But they weren’t consulted — any more than economic studies have been done on the newest tax relief plan that the Legislature has placed on the Jan. 29 ballot, or on the 11 citizen initiatives that seek spots on the November 2008 ballot to in one way or another attack tax burdens.
The motivation for tax cuts is meritorious. But other than the state Taxation and Budget Reform Commission, which is now systematically studying ways to repackage Florida’s entire tax mix, nobody’s tax-cut plan has looked at how all the pieces of the economic pie interrelate.
Nobody looked when they enacted the Save Our Homes amendment that capped tax increases on homesteaded properties at 3% a year, either. First that amendment trapped us in our homes. Now it could allow taxes to rise 3% a year on a home even as its assessed value starts to fall.
These are cautionary tales. A tax cut on the ballot may look appealing, but if it hasn’t been crafted after careful study, it could wind up hurting more than it helps.