Food-for-Thought: Replacing Property Tax with Middle-Class Friendly Progressive Consumption Taxes

Many homeowners perceive the current property tax system as inherently regressive, with the middle class bearing the brunt of subsidizing wealthier homeowners. For many, property taxes are seen as an annual burden, particularly troubling for seniors and minorities, who are often forced out of their neighborhoods. Single-family residences typically are the most significant investments for Americans, and local governments rely heavily on property taxes as a primary source of revenue.

This proposal outlines a series of progressive revenue sources to replace property taxes and alleviate this inequity.

1. Million-Dollar Home Sales Surtax: Impose a progressive surtax on homes sold for over $1 million, with higher rates for more expensive properties. This would generate additional revenue while mitigating the impact of property tax elimination on high-end homeowners.

a) Implement a graduated surtax on the sale of high-value homes.

b) Rates should increase progressively based on the sale price to ensure that those who benefit most from the phase-out of property taxes contribute a more significant share.

c) This would help stabilize the high-end housing market and discourage speculative buying.

2. Higher Transfer Taxes for Short-Term Property Flipping: Implement significantly higher transfer taxes for properties sold within a short period, discouraging speculative trading and flipping. This would ensure that property taxes primarily benefit long-term homeowners.

a) Impose significantly higher transfer taxes on properties sold within a short holding period.

b) This would discourage short-term flipping and ensure that those who profit from rapid property value increases contribute more to local revenue.

c) Exemptions could be made for certain circumstances, such as job-related relocations or medical emergencies.

3. Increased Taxes on Income-Producing Single-Family Rentals: Treat single-family homes used as primary residences differently from those converted into rentals. Impose higher sales and transfer taxes on investor-owned properties to reflect their income-generating nature.

a) Treat income-producing single-family rentals differently from primary residences.

b) Impose higher sales and property and transfer taxes on these properties to reflect their commercial nature.

c) This would help address concerns about the growing number of single-family homes converted into rentals.

4. Additional Airbnb Surtax Revenue: Airbnb (and similar platforms) must collect and remit additional surtaxes to local governments, ensuring that the platform contributes to the tax base and offsets potential revenue losses from traditional hotels.

a) Airbnb and similar platforms must collect and remit surtaxes to local governments.

b) This would ensure that these platforms contribute to the costs of services they utilize, such as infrastructure and public safety.

5. Progressive Surtax on Luxury Durable Goods: Introduce a progressive surtax on high-value consumer goods. This would provide a more equitable alternative to property taxes while generating revenue.

a) Implement a progressive surtax on the purchase of luxury durable goods.

b) This would provide a more equitable source of revenue and reduce the reliance on property taxes.

c) Rates should be progressive based on the type and value of those goods.

Additional Considerations:

a) Administrative Efficiency: Reducing (leading to eliminating) property tax assessment offices could result in significant cost savings for local governments.

b) Public Services: Careful planning is necessary to ensure that the loss of property tax revenue does not negatively impact essential public services.

c) Economic Impact: The proposed reforms should be carefully analyzed (initial studies by independent research firms followed by pilot projects) to assess their potential economic consequences, including any unintended effects on housing markets or consumer behavior.

By implementing these reforms, local governments can progressively generate revenue, reducing the burden on middle-class homeowners while maintaining essential services. Additionally, eliminating property taxes could lead to significant savings for homeowners and businesses. This approach promotes a more equitable and sustainable tax system.

- Originally Published on 06-26-2020 

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