REPLY Land Tax Dynamics (SD6076)

[John Gunkler jgunkler sprintmail.com]

Posted by  "John Gunkler" <jgunkler at sprintmail.com>
Mary,

How are people supposed to pay increasing land taxes?  On paper, their net
worth is going up, but such gains are not realized until the property is
sold -- so where, for example, do those on a fixed income get money to pay
the tax?

This is a serious problem now in Florida, where increasing property values
(and increased taxes) have forced people to sell and move out of state.
And, as the baby boomers age and retire in droves over the next 10-15 years,
the effects on a large portion of the population must be considered of taxes
that increase regardless of wherewithal to pay.

Ad valorem taxes, in general, create some kinds of "unintended consequences"
(that differ from what other taxes such as sales taxes or income taxes do)
which should be captured in any model of effects.

What Florida did a few years ago was to change their tax laws so that new
purchasers must pay annual ad valorem taxes on the full price they pay for a
property -- but subsequent increases are capped (at 3%, I believe).  This
was working for awhile since, presumably, those who purchased property took
into account what they would have to pay in taxes.  However, as property
values soared (ridiculously) over the past few years, the taxes began to
price many people out of the market.  This has contributed to the bursting
of the real estate bubble in Florida.

One point is that there are consequences that change non-linearly (such as
the bubble burst) as taxable value approaches high or low limits, and
determining where these limits are is difficult unless and until they have
been reached (so real data becomes available).  Who predicted, for example,
that it would take a doubling of value over five years (or whatever the
exact figure was) to create a crisis?

John

Posted by  "John Gunkler" <jgunkler at sprintmail.com>
posting date  Mon, 4 Dec 2006 13:21:51 -0500