Man, I never considered the impact of the step-up loophole on housing costs. Thanks for sharing that here. Super helpful. I already supported treating capital gains same as income for taxing as part of tax reforms for UBI, but now it makes even more sense.
I had thought that higher property taxes hurt first-time homebuyers because of the large tax impound required at closing. It can increase an FHA buyer’s minimum down payment by 50%. However, your piece changed my mind. While it may seem counterintuitive, your math adds up.
Stepped-up values have long been a pet peeve of mine. Some people oppose estate taxes as unfair because “that money was already taxed when it was earned.” Often, that is not true. Between accumulated 1031 exchanges and stepped-up values at death, many estates realize enormous capital gains and pay zero taxes. The thrifty, hardworking family pays taxes on their W-2 earnings and capital gains while an heir next door pays none because their unearned income is somehow sacrosanct. Our incentives are upside down, rewarding fortunate children while taxing people who work. If we simply required capital gains to be taxed at death as though they had been sold, we could narrow the deficit and add fairness with little economic friction.
Your article adds a material downside to stepped-up values, as keeping the elderly isolated in family-size homes to avoid tax consequences is very bad policy. Not just for young people priced out, but also for senior citizens who could live in an appropriately sized home with neighbors of similar age and, perhaps, closer to healthcare facilities.
Reduced property taxes for seniors commit the same sin, shamelessly charging more to those with less and effectively stifling mobility. We will soon have open pushback on the generational theft in policies that feather the nests of boomers while severely stretching younger people. I do not believe the approaching Social Security and Medicare cliffs will be easily resolved, as it will require another round of transferring money from the young and burdened to the wealthiest generation. We are reaching an economic and political tipping point.
The next administration should have the opportunity to pass a ROAD 2.0 and perhaps significant tax and entitlement reform as well. We can reduce economic drag while raising revenue, as there is a lot of low-hanging fruit in the misguided tax policy that we enacted over the past 45 years. As an optimist and a boomer, I have high hopes for the future, but we have a lot of work to do.
Yes, and to be fair, I would argue that land value taxes are much better than property taxes. This is in part because the building tax does end up raising the cost of construction which harms first time homebuyers. But, property taxes are much better than no property taxes because they include the land tax.
The stepped-up basis is an interesting nut to crack, I am hopeful it will be solved at some point over the next decade!
Every single boomer in my Florida neighborhood already has a massive homestead exemption. Property taxes can't rise by more than 3% a year and housing doubled in cost over the last decade.
Meanwhile, my exemption as head of a young family that moved after the housing price boom is $50k. Making the minimum exemption $250k would put me on even footing with my boomer neighbors.
DeSantis's proposal is immensely pro-young family and anti-boomer. It's about fairness. I deserve to pay the same property taxes as my boomer neighbors, I shouldn't have to subsidize them by paying more!
BTW there is no assessment cap in the northeast where I'm from. Property taxes are just insane for everyone of every age. And it hasn't stopped housing from being super expensive.
Sure, but this would mean a massive tax increase well above the rate of inflation.
I would far prefer a targeted tax cut directed at young families like myself versus a targeted tax increase on boomers that would be used to fund bloated local government spending of little value to me.
One could go down a list, but let’s ask a more general question.
Property tax revenue in Florida was $31B. In 2024 it was (in inflation adjusted 2019 dollars) $44B. A 42% increase in real terms in five years. Florida’s population did increase 10%, but that still leaves a 30% or so rise in property tax revenue in real terms over five years.
So I ask, if Florida was able to provide necessary public services in 2019, why can’t it provide those same services in 2024 with the same budget in real terms?
It’s almost as if rising assessments were used as a tax increase that didn’t require a vote, and then local governments found ways to spend money they didn’t need. And since boomers have their assessments capped at 3% increases due to the homestead exemption, the burden of this tax increase fell on young families that were first time Florida homebuyers after 2020. And now those people are leading a tax revolt.
But do tell how a law that guarantees young families get the same homestead exemption as boomers is really about robbing the young.
I appreciate that, but that's not the question I asked :) I'd like to know what specific things you would like to cut and that you find unnecessary and that you don't find valuable in your local government.
Alright, let me give you an example. When I see twelve guys standing around watching one guy filling a pothole, I think maybe we could only pay six guys to watch the one guy work.
Multiply that over a whole host of government services.
Man, I never considered the impact of the step-up loophole on housing costs. Thanks for sharing that here. Super helpful. I already supported treating capital gains same as income for taxing as part of tax reforms for UBI, but now it makes even more sense.
Yes, step-up is a much more broad issue, but it is interesting that it contributes to bad housing allocation
I had thought that higher property taxes hurt first-time homebuyers because of the large tax impound required at closing. It can increase an FHA buyer’s minimum down payment by 50%. However, your piece changed my mind. While it may seem counterintuitive, your math adds up.
Stepped-up values have long been a pet peeve of mine. Some people oppose estate taxes as unfair because “that money was already taxed when it was earned.” Often, that is not true. Between accumulated 1031 exchanges and stepped-up values at death, many estates realize enormous capital gains and pay zero taxes. The thrifty, hardworking family pays taxes on their W-2 earnings and capital gains while an heir next door pays none because their unearned income is somehow sacrosanct. Our incentives are upside down, rewarding fortunate children while taxing people who work. If we simply required capital gains to be taxed at death as though they had been sold, we could narrow the deficit and add fairness with little economic friction.
Your article adds a material downside to stepped-up values, as keeping the elderly isolated in family-size homes to avoid tax consequences is very bad policy. Not just for young people priced out, but also for senior citizens who could live in an appropriately sized home with neighbors of similar age and, perhaps, closer to healthcare facilities.
Reduced property taxes for seniors commit the same sin, shamelessly charging more to those with less and effectively stifling mobility. We will soon have open pushback on the generational theft in policies that feather the nests of boomers while severely stretching younger people. I do not believe the approaching Social Security and Medicare cliffs will be easily resolved, as it will require another round of transferring money from the young and burdened to the wealthiest generation. We are reaching an economic and political tipping point.
The next administration should have the opportunity to pass a ROAD 2.0 and perhaps significant tax and entitlement reform as well. We can reduce economic drag while raising revenue, as there is a lot of low-hanging fruit in the misguided tax policy that we enacted over the past 45 years. As an optimist and a boomer, I have high hopes for the future, but we have a lot of work to do.
Yes, and to be fair, I would argue that land value taxes are much better than property taxes. This is in part because the building tax does end up raising the cost of construction which harms first time homebuyers. But, property taxes are much better than no property taxes because they include the land tax.
The stepped-up basis is an interesting nut to crack, I am hopeful it will be solved at some point over the next decade!
Every single boomer in my Florida neighborhood already has a massive homestead exemption. Property taxes can't rise by more than 3% a year and housing doubled in cost over the last decade.
Meanwhile, my exemption as head of a young family that moved after the housing price boom is $50k. Making the minimum exemption $250k would put me on even footing with my boomer neighbors.
DeSantis's proposal is immensely pro-young family and anti-boomer. It's about fairness. I deserve to pay the same property taxes as my boomer neighbors, I shouldn't have to subsidize them by paying more!
BTW there is no assessment cap in the northeast where I'm from. Property taxes are just insane for everyone of every age. And it hasn't stopped housing from being super expensive.
The other way for you to pay the same as the boomers is for us to get rid of the boomer subsidy (3% YoY policy)
Sure, but this would mean a massive tax increase well above the rate of inflation.
I would far prefer a targeted tax cut directed at young families like myself versus a targeted tax increase on boomers that would be used to fund bloated local government spending of little value to me.
What kinds of specific local government spending do you feel are bloated and of little value to you?
One could go down a list, but let’s ask a more general question.
Property tax revenue in Florida was $31B. In 2024 it was (in inflation adjusted 2019 dollars) $44B. A 42% increase in real terms in five years. Florida’s population did increase 10%, but that still leaves a 30% or so rise in property tax revenue in real terms over five years.
So I ask, if Florida was able to provide necessary public services in 2019, why can’t it provide those same services in 2024 with the same budget in real terms?
It’s almost as if rising assessments were used as a tax increase that didn’t require a vote, and then local governments found ways to spend money they didn’t need. And since boomers have their assessments capped at 3% increases due to the homestead exemption, the burden of this tax increase fell on young families that were first time Florida homebuyers after 2020. And now those people are leading a tax revolt.
But do tell how a law that guarantees young families get the same homestead exemption as boomers is really about robbing the young.
I appreciate that, but that's not the question I asked :) I'd like to know what specific things you would like to cut and that you find unnecessary and that you don't find valuable in your local government.
> One could go down a list
Please do!
Alright, let me give you an example. When I see twelve guys standing around watching one guy filling a pothole, I think maybe we could only pay six guys to watch the one guy work.
Multiply that over a whole host of government services.