Helpful local surtaxes? Florida and disadvantaged families

Abstract

Well-intended tax policy often produces unintended consequences. In this article, we look at one such tax policy, specialised surtaxes in the State of Florida. Surtaxes are frequently adopted to provide financial assistance to poverty-based local programmes and services. Despite the intended benefits, we show that the contributors of the tax have been able to capitalise the cost into the residential property market, ultimately placing the burden of the surtax upon the population its revenue intends to help.

Taxation and citizen choice: The effect of a county charter on property taxes

“…Although renters are exempt from paying property taxes on the houses they rent, and thus unlikely to focus on the size of the tax levy, Yinger et al (1988) have shown that the burden of a property tax may be transferred to renters. This transference is the result of property owners increasing the rental costs of the property to compensate for the imposed tax (see also Eger et al, 2017). Although renters may prefer lower taxes to higher ones, the saliency of the tax burden creates a false sense of security.…”

“…Since Tiebout's (1956) research on public expenditures, the public finance literature has assumed that people are rational actors. Based on this rationality, people seek to maximize their income by minimizing their tax burden (see also Burman, 2013; Eger et al, 2017). Over time, the expectation of rationality, and its implication of a preference for lower taxes, has become commonplace in the literature.…”

“…The second piece on which this study is built relates to the preference for low taxes and the willingness of citizens to reduce their burden. From a rational perspective, if citizens prefer lower taxes, then we would expect them actively to reduce their tax burden given the opportunity (see Eger et al, 2017; Tiebout, 1956; Wu & Hendrick, 2009). As discussed earlier, the presence of a charter within a county presents just such an opportunity for optimization.…”