Property Taxes Are The Worst Kind, Except for All the Others

Concrete Evidence (October 13, 2025)

I’ve written a lot about tax policy over the years, but sometimes it’s my own taxes that make me think the hardest.

We finished part of our basement a couple of years back. That entailed a new assessment to see how much our property value had increased—and, in turn, how much more in taxes we’ll be paying going forward. I found this bizarre and irritating. If I had spent the money on pretty much anything else, I’d have paid a one-time sales tax and been on my way.

Property taxes are a perpetual annoyance for those who own homes and businesses. In the words of Florida governor Ron DeSantis, they can make it feel like you’re paying the government rent to live in your own house. DeSantis is currently on the warpath against property taxes, looking to restrict, rebate, or even eliminate them.

A new report from the Tax Foundation’s Jared Walczak, however, provides a cautionary note. Property taxes currently supply about 70 percent of local-government revenue throughout the U.S., and it would be hard to replace that revenue with other taxes. The transition would lead to large disparities in tax rates across places, redistribute tax burdens among households, and likely distort the economy more than the status quo does.

Local sales taxes are one option. Overall, sales taxes in Florida would have to rise from about 7 percent to 15 percent to restore the revenue from property taxes, even assuming sales didn’t decline in response. However, some localities are packed with retail businesses that attract out-of-town customers, while others are more agricultural or residentially focused. For Orange County (home to Orlando) to replace all its lost revenue, an 11 percent rate would suffice. But roughly 17 percent would be required in Miami-Dade and Broward. In smaller localities the differences are even more pronounced.

Similar dynamics unfold with a local income tax. Here, Walczak turns to Ohio to illustrate: “Five counties would require additional rates below 6 percent, the largest of which is Miami County outside of Dayton. Twenty would require double-digit additional income tax rates, led by Monroe County, a small, low-income county bordering West Virginia. Monroe County’s replacement rate is 24.0 percent.” (Ouch.)

As Walczak summarizes, “Local governments’ economic bases simply vary too widely to swap one tax system for another and expect similar revenues.” But what if states stepped in instead?

In that case, localities’ revenues would have to be decided and standardized centrally. Would every area get the amount it had previously collected in property taxes? If so, that would reward those that had taxed more heavily under the old regime. Or would state politicians fight over a formula that tried to dole out cash based on need, the way they often do for state school funding? How would funding change to account for population and economic growth over time?

A workable replacement might be possible, but it’s unlikely to be better than the status quo.

Property taxes are annoying to normal people. But economists tend to like them, at least relative to real-life alternatives like income taxes (which discourage work), and sales taxes (which tend to be inefficiently designed and littered with exemptions).

Walczak conceded in an earlier report that property taxes can discourage improvements—like finishing my basement. I’ll take that as justification for my frustration a while back. But this is a relatively small distortion compared to what we see with other types of taxes.

At the end of the day, property tax is like what Churchill said about democracy: the worst type of tax, except for the alternatives actually available to local governments.

From the Manhattan Institute

• I have a new report called “Thinking Through the ShotSpotter Debate.” It’s my attempt to wade calmly through the various controversies associated with gunshot detection technology. In general, I find it can improve firearm investigations, but also poses some important tradeoffs cities should consider—especially if they don’t have the staff to respond to alerts and process evidence efficiently.

Other Papers of Note

• Both the RAND Corporation and Pew have new survey data about how modern Americans think about kids’ use of cell phones and other screen-bearing devices. The former focuses on schools’ policies and kids’ attitudes toward them, the latter on parents’ restrictions for their own kids. (Shockingly, RAND finds that principals are more enthusiastic about phone limits than kids are.) These pair well with MI’s model legislation for restricting phones in schools.

• The Committee for a Responsible Federal Budget debuts its Trust Fund Solutions Initiative, with ideas for preventing insolvency for the Social Security, Medicare, and highway trust funds.

• Washington State’s plastic-bag ban doesn’t seem to be going well: “Based on sales data from a carryout bag distributor, the number of plastic bags distributed in Washington fell by 50% between 2021 and 2022. However, during the same time, total plastic use by weight increased by 17%.” Reusable bags, being thicker, need to be reused a lot to actually be better for the environment.

• Cristian deRitis and Mark Zandi of Moody’s have an interesting report on the capital-gains tax as applied to homes. Basically, if you sell a house that’s gained more than $250,000 in value ($500,000 for married couples) the excess is taxed as a capital gain. However, if you stay in the home until you die, your heirs won’t be taxed on that gain, because the “basis” for a capital gain is “stepped up” to the current value at death. This encourages empty-nesters to stay in homes bigger than they need or want, and makes it harder for younger Americans with growing families to secure suitable housing.

  The authors note reform options ranging from indexing the exclusions to inflation (which was not done when they were enacted all the way back in the 1990s) to eliminating the tax. Regarding the more aggressive options, I’d submit that the stepped-up basis is the root problem here. Why do people who actually invest in stocks, homes, etc., have to pay tax when they sell, while people who just inherit them and sell immediately don’t? Giving a tax break to older Americans who’ve enjoyed massive gains in home value is not the best way to fix the issue.

• Whatever an economist might say about supply and demand, Christopher S. Elmendorf and colleagues find in new surveys that “ordinary people simply do not believe that adding more housing to the regional stock would reduce housing prices.”

• As I explained in City Journal not too long ago, one reason it’s difficult to measure trends in inequality is that some income is not reported to tax authorities, and experts disagree as to who’s doing the most misreporting. A new paper raises some fresh technical issues and suggests that proper adjustments may reduce the share of income going to the rich.

• There have been “remarkable earnings advances among 2nd-generation Black immigrants, opposite to the well-documented widening in overall Black-White earnings gap.”

• “[T]he density of alcohol outlets is associated with higher rates of gun and non-gun assaults, and this association is greater for non-firearm assaults.”

• Child-maltreatment investigations cause “a reduction in injuries and an increase in preventative care.”

• The Hoover Institution has some new results from a business survey about work from home. For example, “70 percent of firms do not monitor whether their employees meet onsite work requirements, and 75 percent do not track how much their employees [work from home].”

See you next week!

Header photo courtesy Joe Raedle/Getty.