Thursday, February 22, 2007

Taxes and an Upward Redistribution of Wealth

The Florida House of Representatives is debating a measure that would eliminate property taxes on homesteaded property, with the budgetary shortfalls that would result to be made up for by a 2.5% increase in the state’s sales tax. This is being presented as a move to relieve the economic burden of the state’s permanent resident homeowners. (It should be noted that such a radical move faces an uphill battle to adoption. It would first have to pass through the legislature, and then, since it involves a state constitutional matter of taxation, it would have to be approved by a 2/3 vote, which wouldn’t occur for at least a year and a half, according to current news reports.)

To judge from the comment boards to articles on the issue in the past two days’ (February 21 and 22) online editions of The Pensacola News Journal, this would be a move highly popular among many homeowners. This is understandable in the current context. For starters, the elimination of property taxes probably sounds on the surface like a good deal to any property owner. Further, many if not most Florida homeowners are currently economically burdened by increases (sometimes drastic) in home insurance costs as a result of the hurricane damages in the state during the past few years. Right now, any reduction of total house payments for any reason sounds like a good thing to many Floridians. On the News Journal’s comment boards, the vast majority of posters are clearly in favor of the proposed changes.

One rare dissenter, who posted that this move would place the tax burden on the poor, those who rent, and those with currently low property taxes, was promptly rebutted with the claim that he or she (comments are generally anonymous, without clear indication of gender) was using faulty logic, that clearly the burden for the shift to higher sales tax would be on those who spent the most – not the poor. In one sense, that thinking is correct – as with sales tax in general, those who spend the most pay the most sales tax, so the increase in sales tax revenue will come more from those who spend the most. But I think the problem with the dissenter’s post was not in its logic so much as in its rhetoric. If instead of asking who will bear the burden, we ask who will be burdened, or who will benefit and who will be disadvantaged relative to their current situation, we see a different perspective.

Regardless of whether one feels the proposed tax changes are fair or unfair, moral or immoral, on objective economic terms, the proposed changes in how taxation works will cause some people to pay more in total taxes than they do now and others to pay less than now.

Simply put, the poor, those who rent (whether poor or not), and/or those with currently low property taxes will generally end up paying more total taxes. If you don’t currently pay property tax, you can’t benefit from its elimination (unless one assumes that landlords would pass on their savings on property tax to renters, something I find hard to imagine happening en masse, and certainly not something to count on). If you don’t currently pay much property tax, you won’t benefit much by its elimination. And at the same time, the poor along with everyone else will end up paying more sales tax, with therefore the result being more total taxes for the poor, and in many cases, as a proportion of income, considerably more tax.

For most of us in the middle class economically, the proposed changes won’t amount to much one way or another. Some will gain a bit when the elimination of property tax is weighed against the increase in sales tax (by my own quick and dirty calculations, I figure to fall into this situation myself); some might lose a bit; most middle class homeowners probably don’t stand to gain or lose much by these changes (I again place myself here), though the subjective weight of the eliminated property tax bill might be heftier than the increased sales tax spread over many small purchases, i.e. it’s likely to feel like a better economic deal than it is for many.

Those who are wealthy will pay lower total taxes than now. They’ll pay more total sales tax on an individual basis than anyone else, just as now, but in proportion to income this will affect them less and will be outweighed in most cases by the elimination of large property tax bills.

In short, and again whether one finds it right or wrong, fair or unfair, what the Florida House’s proposed changes amount to is an upward redistribution of wealth where the poor will pay more taxes than they do now and the wealthy will pay fewer taxes than now.

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