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!
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.
This has to be one of the more poorly reasoned and inflammatory pieces I've read on P&P to date. So much to pick apart, but I'll limit it to three points:
1. Most of the assumptions here are based on small cases and models, which are notoriously inaccurate. And they focus on the immediate assumed impact, not bothering to consider harmful residual effects such as displacing homeowners and likely higher rates of vacated properties and foreclosures which historically result from raising property taxes (edit: I mean rapid rising in large increments as this piece proposes.)
2. The demonization of "boomers" here is unnecessary. The vast majority of older homeowners, and the ones who would be most severely impacted by a rapid rise in property taxes are average middle-income Americans who worked hard to afford and keep a home. They are members of a community and, yes, maybe they tend to vote for lower tax burdens and other measures anathema to current progressive rhetoric, but can you blame them?
3. Wealth and housing are not zero sum. While Georgist ideas are not specifically liberal or conservative, this piece attempts to push LVT proposals into a left sphere, hoping you will not remember that for half a century, conservative states and municipalities have done a generally better job at managing housing and keeping housing costs in line with local economies. They have done this through a combination of lower taxation and less regulation, encouraging development and stability.
If you think raising property taxes in order to displace current owners is a real long-term solution, ask yourself: How will the new wave of owners react in five or ten years when a ballot initiative comes out to cap or reduce property taxes? Home ownership and families create conservatives. And nearly all people want the stability of ownership to be able to raise a family. That's been a thorn in the side of progressivism for a century. That's the problem you should be working on, not how to make grandma homeless.
Gen X here, married to a Boomer, in a big house in California, with kids still in the house but empty-nesters in a few years. We will likely stay in our house until we can't manage it anymore (or until we die). In part, that's for financial reasons--the two you mention, but also a low-interest post-COVID 30-year mortgage (which, btw, is another US government distortion that doesn't exist in other countries, and that does make housing sticky with no-penalty refinancing leading to low rates for longer-held, refinanced mortgages). It makes no financial sense for us to even consider downsizing: we'd pay massive capital gains taxes, our property taxes would be higher on a smaller property, and our mortgage rate would more than double, while the price of homes are up around 50% since we bought, so our current home's equity likely won't be enough to buy a smaller home in a desirable location.
But, also: we love our house, and we will use the extra space to welcome back college-age children over summers or after college if they work locally, to host friends for extended visits, and to hopefully host family reunions. I'm also open to shared housing down the road, having friends or young people live in our bedrooms (we've done that a couple of times with Au Pairs and with an aspiring Olympic swimmer). I don't think that all old people want to live in a small rental appartment; my mom who is 85, for example, chose to stay in her family home, alone, despite no stepped up basis in Germany, because she likes her garden and has lots of friends in her neighborhood. (Hardly any property taxes in Germany, btw--my mom's are less than $1,000 per year.)
I am for fixing structural issues that remove financial handcuffs for those who do want to downsize--but also, I am against any move that adds taxes to our already high tax bill in California. If you increase property taxes and eliminate the stepped-up basis in the service of unfreezing the housing market (a worty goal), you'll have a much better chance of getting support from people like us who want to see the housing market opened up for our young adult children if you find a way to lower taxes elsewhere, instead of just punishing older people on fixed incomes with a sudden, hefty tax increase.
We are planning for our retirement in the future, and if we had to pay 2x property taxes that would be a hard nut to carry, especially as downsizing would mean a 2x mortgage rate, so there isn't an easy escape path to an owned, smaller-sized home at lower cost. (I'm not eager to rent again, after our landlord kicked us out with a 60-day notice after 5 years renting, in the middle of COVID when it was almost impossible to find another rental that would take a family of four with three cats.)
Appreciate your comment! And I concur that all of this should be done revenue-neutral.
Typically property taxes are set revenue-backwards. The city says: We need $100m, set a tax rate that gets us that. So, if we unwind some of these incentives, the rate goes down and the city still collects $100m.
Decreasing sales and income taxes--as well as the building portion of the property tax- in favor of land value taxes would be my preference.
Ultimately housing stock is the final arbiter. I live in a country that has repeatedly lowered property taxes, and is doing it again as I write, but because the housing stock is increasing and replacing old homes faster than they get run down, prices are competitive and people in their 20’s with mediocre wages can afford to buy. It’s not rocket science.
Property taxes can be utterly destructive as well. In Michigan, where I grew up, properties were often abandoned because they were functionally worthless due to property tax burden (the state tax is only high-ish, but the local taxes can exceed 5%). If you own a 150,000$ office space, you can expect as much as a 10,000$ a year property tax. This might affect homeowners less due to demand appreciation, but ultimately when businesses close up shop your house will slowly become worthless as well.
The downstream effect is that eventually homes become worthless too, as the property tax consumes more than the value can ever gain in appreciation.
City Councilors and County Commissioners, a guide to making sure everyone moves out of your jurisdiction and into the neighboring one with lower property taxes:
Boomers on the internet get really mad when you talk about boomers, but if you just state in plain english what this generation has done, buying all the homes, ruthlessly advocating to ensure no new homes get built, and then finally at their peak influence voting to stop taxing their own property, it sounds like a batman villain. Like this is absolute madness. There's no possible way we can move forward as a country without radical change here
Mega capital investment firms loke Blackrock buying up housing and holding them is a very strong reason for why prices are rising so fast. The investor classes is pushing the costs higher. Just saying it is more than boomers holding on to their houses because they love living where they have invested many , many years full of memories.
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.
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!
It really depends on the state.
And not all older folks are your problem.
Even if you hope that they are.
Older people worked hard for their homes.
Have paid decades more taxes than the young and have earned their right to age gracefully without fear of losing their homes.
Children that inherit those homes are criminals.
You hope to leave something behind to your kids so that they have a fighting chance at a safe steady life.
There are states right now that have hundreds and thousands of empty homes for sale.
The interests rates are stalling what could be a strong market and an abundance of homes for everyone.
Nothing is perfect.. we make mistakes, we learn and we hopefully evolve.
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
This has to be one of the more poorly reasoned and inflammatory pieces I've read on P&P to date. So much to pick apart, but I'll limit it to three points:
1. Most of the assumptions here are based on small cases and models, which are notoriously inaccurate. And they focus on the immediate assumed impact, not bothering to consider harmful residual effects such as displacing homeowners and likely higher rates of vacated properties and foreclosures which historically result from raising property taxes (edit: I mean rapid rising in large increments as this piece proposes.)
2. The demonization of "boomers" here is unnecessary. The vast majority of older homeowners, and the ones who would be most severely impacted by a rapid rise in property taxes are average middle-income Americans who worked hard to afford and keep a home. They are members of a community and, yes, maybe they tend to vote for lower tax burdens and other measures anathema to current progressive rhetoric, but can you blame them?
3. Wealth and housing are not zero sum. While Georgist ideas are not specifically liberal or conservative, this piece attempts to push LVT proposals into a left sphere, hoping you will not remember that for half a century, conservative states and municipalities have done a generally better job at managing housing and keeping housing costs in line with local economies. They have done this through a combination of lower taxation and less regulation, encouraging development and stability.
If you think raising property taxes in order to displace current owners is a real long-term solution, ask yourself: How will the new wave of owners react in five or ten years when a ballot initiative comes out to cap or reduce property taxes? Home ownership and families create conservatives. And nearly all people want the stability of ownership to be able to raise a family. That's been a thorn in the side of progressivism for a century. That's the problem you should be working on, not how to make grandma homeless.
Gen X here, married to a Boomer, in a big house in California, with kids still in the house but empty-nesters in a few years. We will likely stay in our house until we can't manage it anymore (or until we die). In part, that's for financial reasons--the two you mention, but also a low-interest post-COVID 30-year mortgage (which, btw, is another US government distortion that doesn't exist in other countries, and that does make housing sticky with no-penalty refinancing leading to low rates for longer-held, refinanced mortgages). It makes no financial sense for us to even consider downsizing: we'd pay massive capital gains taxes, our property taxes would be higher on a smaller property, and our mortgage rate would more than double, while the price of homes are up around 50% since we bought, so our current home's equity likely won't be enough to buy a smaller home in a desirable location.
But, also: we love our house, and we will use the extra space to welcome back college-age children over summers or after college if they work locally, to host friends for extended visits, and to hopefully host family reunions. I'm also open to shared housing down the road, having friends or young people live in our bedrooms (we've done that a couple of times with Au Pairs and with an aspiring Olympic swimmer). I don't think that all old people want to live in a small rental appartment; my mom who is 85, for example, chose to stay in her family home, alone, despite no stepped up basis in Germany, because she likes her garden and has lots of friends in her neighborhood. (Hardly any property taxes in Germany, btw--my mom's are less than $1,000 per year.)
I am for fixing structural issues that remove financial handcuffs for those who do want to downsize--but also, I am against any move that adds taxes to our already high tax bill in California. If you increase property taxes and eliminate the stepped-up basis in the service of unfreezing the housing market (a worty goal), you'll have a much better chance of getting support from people like us who want to see the housing market opened up for our young adult children if you find a way to lower taxes elsewhere, instead of just punishing older people on fixed incomes with a sudden, hefty tax increase.
We are planning for our retirement in the future, and if we had to pay 2x property taxes that would be a hard nut to carry, especially as downsizing would mean a 2x mortgage rate, so there isn't an easy escape path to an owned, smaller-sized home at lower cost. (I'm not eager to rent again, after our landlord kicked us out with a 60-day notice after 5 years renting, in the middle of COVID when it was almost impossible to find another rental that would take a family of four with three cats.)
Appreciate your comment! And I concur that all of this should be done revenue-neutral.
Typically property taxes are set revenue-backwards. The city says: We need $100m, set a tax rate that gets us that. So, if we unwind some of these incentives, the rate goes down and the city still collects $100m.
Decreasing sales and income taxes--as well as the building portion of the property tax- in favor of land value taxes would be my preference.
Housing should be so abundant that property tax is a minor issue. Regulations are the elephants and taxes are, well, not ants but ponies.
There is no world where life is perfect.
Lower property taxes are a dream for folks who have owned their homes for years and hope to age in place.
I hope that’s still ok with progressives.
Are we still allowed to age in place or is that taboo now too?
I just read an article where housing is super inexpensive and homes for sale are in abundance in N Carolina.
People move to states and cities that they can afford.
Right now nobody is selling or buying because interest rates are so high.
Lower those and you can afford the property taxes each year.
It’s a tough real estate market right now for everybody.
Elect a Democrat as President in 2028 and things get more affordable.
Hang in there.
Ultimately housing stock is the final arbiter. I live in a country that has repeatedly lowered property taxes, and is doing it again as I write, but because the housing stock is increasing and replacing old homes faster than they get run down, prices are competitive and people in their 20’s with mediocre wages can afford to buy. It’s not rocket science.
Property taxes can be utterly destructive as well. In Michigan, where I grew up, properties were often abandoned because they were functionally worthless due to property tax burden (the state tax is only high-ish, but the local taxes can exceed 5%). If you own a 150,000$ office space, you can expect as much as a 10,000$ a year property tax. This might affect homeowners less due to demand appreciation, but ultimately when businesses close up shop your house will slowly become worthless as well.
The downstream effect is that eventually homes become worthless too, as the property tax consumes more than the value can ever gain in appreciation.
It's kinda weird that the fact that California has state taxes and Texas doesn't isn't noted here?
City Councilors and County Commissioners, a guide to making sure everyone moves out of your jurisdiction and into the neighboring one with lower property taxes:
Boomers on the internet get really mad when you talk about boomers, but if you just state in plain english what this generation has done, buying all the homes, ruthlessly advocating to ensure no new homes get built, and then finally at their peak influence voting to stop taxing their own property, it sounds like a batman villain. Like this is absolute madness. There's no possible way we can move forward as a country without radical change here
Also isn’t it weird that Florida of all places wants to get rid of property taxes? Aren’t they all about having more local government?
Mega capital investment firms loke Blackrock buying up housing and holding them is a very strong reason for why prices are rising so fast. The investor classes is pushing the costs higher. Just saying it is more than boomers holding on to their houses because they love living where they have invested many , many years full of memories.
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.