Florida Wants to Cut Property Taxes—But California Has a Warning

As state lawmakers consider cutting and even abolishing property taxes in Florida, California—which passed major reform in the late 1970s protecting homeowners against significant hikes—offers a cautionary tale of how well-intended tax revolts can backfire against those they should benefit.

Why It Matters

Florida, along with Illinois, Kansas, and Pennsylvania, is among four states currently planning to eliminate property taxes entirely. Governor Ron DeSantis supports this proposal.

While abolishing property taxes requires a constitutional amendment backed by 60 percent of Florida voters, the Republican governor has proposed immediate property tax relief to the state's homeowners in the form of $1,000 rebates for each homesteaded property.

What To Know

A few decades ago, Californians were hungry for lower property taxes.

"In the 1970s, home values in California were skyrocketing, while stagflation and high unemployment meant people were forced to spend money they did not have," Rita Jefferson, a local analyst at the Institute on Taxation and Economic Policy, told Newsweek.

"The state attempted to modernize the property tax system by rooting out corruption and enforcing standard property assessment methods meant that homeowners were being exposed to the real cost of their property taxes for the first time ever," she said.

"People were mad about skyrocketing bills, and anti-tax advocates like Howard Jarvis successfully turned people's anger into Proposition 13—a referendum on taxation and government spending generally."

In June 1978, California voters backed Proposition 13, an amendment to the state constitution that capped the property tax rate to 1 percent of the assessed value and limited property reassessment to when a home changes ownership. It required a two-thirds majority for tax increases in the state legislature.

Before Prop 13, property taxes in the state were based on a home's market value; for the past nearly five decades, they have been based on a home's purchase price. Each year after the purchase, the property's taxable value increases by 2 percent or the rate of inflation, whichever is lower.

David Schleicher, Walter E. Meyer professor of property and urban law at Yale Law School, told Newsweek that Prop 13 "was surely driven in part by increasing housing prices, which led to increasing property tax assessments—and thus annual tax payments. It was also part of a broader anti-tax movement."

These are some of the same reasons that are now driving Floridians to wish for the total elimination of property taxes after years of skyrocketing home prices, rising homeowner association fees, and stubbornly high home insurance premiums.

Whatever the reason, Schleicher said, the effects of Prop 13 "were enormous."

Locked-In Homeowners And Lost Revenues

Prop 13 had the immediate effect of lowering property taxes for California homeowners, as planned, but also had many unintended consequences.

"In the short term, Prop 13 cut city, county, and school funding nearly in half, and the state had to step in and send billions in funds to local governments to keep doors open," Jefferson said.

In the long term, the legislation led to "huge tax inequality," with similar properties being taxed differently, and "really limited mobility, as people don't want to leave houses with favorable tax treatment," Schleicher said. "It also made housing markets much worse for young people."

A July 2024 study by the Federal Reserve Bank of Minneapolis found that lower property taxes tend to concentrate homeownership among elderly empty-nesters, limiting housing for young families.

Wealthier homeowners have also benefited more from Prop 13 than less wealthy, having accrued property wealth "much faster than people who own cheaper homes, which in turn makes the tax advantage that much larger," Jefferson said.

Assaf Harpaz, an assistant professor at the University of Georgia School of Law, told Newsweek that Prop 13 contributed to California's current housing affordability crisis.

"Under Prop. 13, property reassessments are generally limited to instances when property changes ownership or when it is newly constructed, creating a 'lock-in effect,'" Harpaz said.

"Homeowners benefit from remaining in the same house because their property taxes are lower than if they would live in a different house with the same value, so long as property values increase by more than 2 percent, annually."

According to an analysis by the Sacramento-based Legislative Analyst's Office (LAO), a nonpartisan government agency, the share of properties sold each year in California has been on the decline since the passage of Prop 13.

In 1977-78, 16 percent of properties were sold in the state; in 2014-15, this share had declined to 5 percent.

In addition, the 1970s tax revolt in California, which culminated in Prop 13, has "made municipalities more reliant on state aid, sales taxes, and construction impact fees, and has eroded the ability for cities and counties to make fiscal decisions on their own," Jefferson said.

"Reliance on sales taxes means that cities prioritized building properties like hotels and malls rather than housing. It has been a massive tax cut for commercial property owners at the expense of residents, since commercial properties like office buildings and hotels change ownership much less frequently than homes do," she added.

"Over time, it has shifted the property tax incidence from commercial property owners to homeowners. The classic example is Disneyland, which is still being taxed on 2 percent growth in value from the 1970s."

What Could Happen in Florida

Florida already has a slightly less strict version of Prop 13 called "Save Our Homes," passed in 1998, which limits annual increases in property tax rates to much below market rates. Crucially, it only applies to homesteads, not to commercial properties.

According to Schleicher, eliminating property taxes entirely would remove the effect Florida's Prop 13-style homestead assessment has on encouraging people to hold on to property, which is a positive. But there is also a risk.

"Like Prop 13, it would lead to different taxes becoming more prominent, and likely state-raised money—rather than local property taxes—becoming more prominent. Repealing property taxes entirely is a much more radical step," he added.

For Jefferson, it would also make Florida more regressive than it already is.

"What that means is that low-income Floridians are spending a larger portion of their incomes on taxes than high-income earners," she said.

"Eliminating property taxes is a massive tax cut for wealthy people and companies who own mansions and commercial property. For low- and middle-income homeowners, this would be a massive tax increase in things like sales taxes, user fees for things like parks, libraries, and school districts, and the use of fines and fees to cover their bills," Jefferson said.

While DeSantis said that tourism would cover the loss of revenue for local governments, Jefferson said, "There is simply no way to make up the $55 billion Florida localities collect. "

"For comparison, state and local sales taxes collected only $47 billion last fiscal year. They would need to more than double sales tax rates to even come close to making up the lost property tax revenue, and those sales taxes affect all Floridians, not just tourists," she said.

"Abolishing property taxes will only further enrich high-income families in Florida at the expense of low- and middle-income families trying to make ends meet."

While several states are considering abolishing property taxes this year, no state has ever done so—for a valid reason, Jefferson said.

Property taxes are 'the main way we fund schools, public safety, and essential services like street repairs and garbage collection in the U.S.," she said.

"In addition, this would also likely tank the credit ratings of Florida municipalities, since they will no longer have the ability to levy property taxes to pay for new bonds—that makes selling bonds more expensive and drives up other tax rates.

"Voters in other states have been smart to reject proposals to abolish property taxes, and Floridians shouldn't fall for bad ideas that will make their communities worse off."