In this article, let’s understand why property taxes are skyrocketing in the US. And, there is no better place to explore this topic than the state of Florida. Florida has a well-developed real estate market that has a strong effect on the state’s economy.

Lately, Ron DeSantis, the governor of Florida, made a proposal. He wants a relief on property taxes to tackle surging tax burden on Floridians. Can Ron DeSantis succeed and are there pros and cons to his proposal? Let’s delve in.

Why Property Taxes Are Surging in Florida

Here is the issue. Property taxes have jumped around the US. But, in Florida, this has become a keen issue since 2020. The culprit was rising home values. Many people moved to Florida for its less restrictive covid response, no income taxes and warm climate.

If we look at the average home value on Zillow, here is what we see. The US average prices jumped from roughly $247K to $361K, a 46% increase from 2020 to now. A similar picture arises from Florida. Home values in the sunshine state shot up from $249K to $387K. That’s a 55% increase, which is about 9% higher than the national average.

If we look at the consumer price index (CPI), it went up by 24% over the same period.

The CPI does account for the cost of housing. But, housing makes up about one-third of the CPI. In other words, while prices are up for Americans, housing inflation was more than 2x of the CPI in Florida.

If we look at property taxes in Florida, 94% of them come from real estate. The remaining 6% are from personal property, like boats and cars. As home values went up, property taxes followed.

The property tax per capita was steadily creeping up before the pandemic. But, there has been a dramatic jump since then. From 2021 to 2023, property tax per capita grew by almost 10% each year. That’s high by historical norms. After 2023, the home inflation slowed down in Florida.

If we compare Florida’s property tax rate to the national average, it’s actually not the highest. At 0.74%, Florida ranks somewhere in the middle of the pack. But, if we look at property tax collection per capita in Florida, it stands at $2,013 in 2023. The national average is $1,889. So, Florida’s property tax collections are higher than the US average. That was not the case before 2020.

Median household income in Florida is $71,711, which is lower than the national median of $80,610. In other words, not only incomes are lower in Florida, but also its property tax burden is higher than the national average.

The problem gets worse. Florida has a higher proportion of older people living there. Its percentage of people aged 65 or older stands at roughly 22% compared to the national average of 18%. Many retirees live on a fixed income. Hence, they feel the pinch of higher property taxes more than a working household with a growing income.

Current Property Tax Relief Structure in Florida

As it stands now, here is how the property tax system works for residents of Florida.

1. Florida Homestead Exemptions

The first $25,000 of home value are 100% tax-free. The second $25,000 gets taxed at a regular tax rate.

The next $25,000 between $50K and $75K of the home value is also exempt from levies except for school board taxes. And, that’s the catch. Depending on a county, school board taxes can be significant. This effectively lowers the total homestead exemption from $50K to $39K according to Florida’s senator Blaise Ingoglia.

2. Save Our Homes Assessment Limitation

On top of it, there is the so-called Save Our Homes Assessment limitation. For residents, it caps increases on home value assessment to 3% or CPI inflation, whichever is less.

There is something similar for non-residents and other properties. The annual assessment is capped at 10%. There are also veteran and early payment discounts.

The Cost of Current Property Tax Relief in Florida

When it comes to the cost of each exemption, here is a table from the Florida Policy Institute. It shows that property tax relief in Florida cost $32 billion in foregone tax revenues in 2024-2025.

Save our Homes assessment limitation is the most expensive. It costs over $14 billion to Florida counties. Veteran discounts and the first $25K exemption on homestead properties follow. The second $25K homestead exemption is the least costly. This is so since probably there are houses that cost less than $75K. Plus, don’t forget that school board exemption on exemption we talked about. Florida has exemptions for non-residents too I talked about.

Current Property Tax Exemptions in Florida May Not Be Enough

The above exemptions do help lower-income families owning smaller, less expensive homes. The problem is that these homestead exemptions were adopted a long time ago. Back then, an average single-family house came with a price tag much lower than what it is today.

The median home price today in Florida is $421K. The $25K homestead exemption covers only 6% of the median home value. This percent coverage was much higher before, even prior to 2020. We can put the blame on the housing inflation, of course. But, then, why would Florida’s laws not be updated a long time ago and index the $25K homestead exemption to inflation?

And to be fair, Floridians did vote for and approved Amendment 5 last year. This amendment added an annual positive inflation adjustment to the homestead exemption. But, the adjustment applies only to the second $25K exemption. And, it is indexed to the CPI, not to the housing inflation. As we saw earlier, home inflation can grow at a faster clip than the CPI.

Also, the Save Our Homes assessment limitation caps assessed values to 3% a year or CPI. But, after home prices spiked more than 5% or 10% a year, even this relief may not be enough. The thing is that this limitation applies only if you continue living in your home. If you move, sell your home and buy a new one, you get locked into a higher assessed value and hence higher property tax. This becomes a keen problem, when household incomes do not keep up with rising home prices.

Why Repealing Property Taxes is Not That Easy

So, what’s the solution that Ron DeSantis proposes? He offers repeal or some other form of property tax relief for full-time residents of Florida. But, there is an issue. Property taxes represent an important component of Florida's county revenues. Here is a breakdown of the revenue sources for a typical Florida county.

We see that taxes and charges for services account for almost 60% of all revenues. If we look at where tax revenue comes from, we see that over 70% of all tax collections are property taxes. The remainder is sales taxes and other miscellaneous tax charges.

So, property taxes make up 18% of county revenues on average. But, remember those school board property taxes earmarked for education? They make up 50 to 60% of school district revenues according to the Florida Policy Institute. So, property tax is an important component to fund schools on a county level in Florida.

Why Sales Taxes Increase Could be a Must for Property Tax Relief

Florida Policy Institute estimates that repealing property taxes results in a $43 billion shortfall. That's $2,015 per capita. Of course, this $43 billion assumes 100% elimination of property taxes for everyone. I believe this is not what DeSantis proposes. So, the shortfall will probably be below $43 billion. How much exactly, we don’t know. The data is not easy to find.

Let’s assume that property taxes will get repealed for full-time residents only. That will probably cost anywhere under $40 billion in lost revenues. And, there is no magic wallet to pay for this shortfall. It will have to come from somewhere. The Florida Policy Institute says that the most obvious candidate is raising sales taxes.

Florida's Heavy Dependence on Sales Taxes

Florida is heavily dependent to balance its state budget with sales taxes. With no income tax, consumption tax is the only remaining avenue. The state of Florida gets 60% of its revenues from sales taxes. The US average is around 25% given that many states impose income taxes.

Florida’s current sales tax rate is 6%. Also, counties levy their own sales taxes, which could be up to 2%. Doubling Florida’s sales tax to 12% would raise the needed $40 billion. That is, this assumes that the consumer demand will remain the same. If consumption falls, you won't get $40 billion almost for sure.

Why Raising Florida Sales Taxes is Problematic?

There are pros and cons to raising sales taxes to fund the property tax relief. First off, property taxes are more reliable. Consumption comes and goes. But, real property is always there. So, property taxes provide a much better stability for county revenues.

On top of it, what we are talking about here is the statewide increase in sales taxes, not on a county-based level. Florida’s central government would have to collect sales taxes and then disburse funds to each county as needed. There is a counter argument to that. Such an arrangement would produce less autonomy for counties. Counties will be more dependent on Florida’s central government for fiscal decisions.

There is another option for Florida counties. And, that is for them to raise sales taxes on their own. But, there is a 2% rate limit to that. The Florida Policy Institute made estimates on that. If counties collect sales tax at maximum rates, they would raise $13.2 billion. Any shortfall beyond that will have to come from somewhere else. Again, the likeliest candidate is the statewide sales tax increase.

DeSantis Wants Florida DOGE Effort to Fund Property Tax Relief

At the same time, DeSantis thinks that there are alternative ways to fund property tax relief. In particular, he proposes to get rid of waste at the county level coupled with sales tax increase.

As property tax revenues rolled in, some counties set aside money into rainy day funds. But, some chose to increase their spending, whether justified or not. For instance, take Lake county near Orlando. Total taxable property value there has almost doubled there since 2020.

The county’s annual budget also almost doubled as property tax collections shot up.

At the same time its operating expenditures went up too since 2020. For instance, personal services went up by 61%. Operating expenses ballooned by 84%. Lake county’s population increased by about 18% since 2020. Even coupled with the CPI inflation of 24%, these are large budget increases.

I don’t know enough about this county. It could be that these large increases are justified, but maybe not. If you are a government official with money rolling in, you can always find a social program to spend on. But, is this program productive or needed at all? That’s a different question to answer.

Of course, will these DOGE efforts find lots of waste to fund property tax relief efforts? I don’t know the answer. Ron DeStantis points out that property tax is an anomaly. Floridians should not pay "rent" check to their local government for the privilege of living in their house.

Still, money will have to come from somewhere to cover the shortfall if the DOGE initiative will not be enough. So, what’s the alternative then? Again, raising sales taxes is one of the few viable options.

Sales Tax vs. Property Tax Debate

Higher sales tax may hit low-income residents of Florida, as many point out. But, there are some offsetting factors. Florida exempts food, baby products, drugs and other necessities from sales taxes. Florida's sales tax exemption list is long. Low-income families spend more on necessities compared to wealthier households. So, this helps.

Also, DeSantis points out that around 40-50% of sales tax burden is borne by non-residents. Which is also a positive if sales tax increase becomes a must. Still, with 50%-60% of the sales tax burden falling on full-time residents, that’s significant.

If you look around, there is a lot of debate to what’s better: sales tax or tax on wealth, like homes. A home is a strange animal, though. It kind of plays a dual role. It is a store of value, no doubt. But, it is also a necessity and shelter, especially for a full-time resident of Florida living in a modest home.

So, there is an argument to make here either way. You can argue that exempting more homestead value from property tax may make sense. Full-time residents will get some relief. And, Florida can continue taxing non-residents and high-valued homes.

Also, economists generally agree that sales tax, as a form of consumption tax, is less distortionary compared to wealth tax. Taxing real estate too much may stifle investment in housing and discourage people from moving to Florida.

At the same time, there were some studies done on the effect of replacing property taxes with sales tax. One regional study looked at the overall effect in Indiana and found that there would be around negative 2%-3% on the state's output. The research paper assumed full replacement of property taxes with sales taxes.

If Florida provides partial relief and continues taxing non-residents, that's a different matter. The overall negative effect on economic output in Florida may be negligible. Anyway, it is a complicated argument. Policymakers will have address and assess it.

Property Tax Relief Requires a Constitutional Amendment in Florida

The tussle between DeSantis and Florida’s House of Representatives just began. As a counter, the House proposed reducing Florida sales tax rate by 0.75%. It is an interesting situation because Republicans hold a supermajority in Florida’s House. DeSantis said that this sales tax reduction will kill his efforts to reduce property tax. On top of it, he criticized the sales tax increase as it will benefit non-residents. So, he vowed to veto this bill.

Property tax relief will have to go through constitutional amendment in Florida. Meaning, residents of Florida will have to vote on it. To make it into the 2026 ballot, proposed amendments will have three avenues for that. The first one is from citizens' signatures. The second one is from the state legislature. And the third one is from certain commissions (the Constitution Revision Commission or the Taxation and Budget Reform Commission).

Currently, Florida’s House of Representatives formed a commission to study property tax relief. There are five proposals under consideration.

Among them is raising the homestead exemption. Also, another proposal will prohibit foreclosures on properties with unpaid property taxes.

After that, the legislature may propose the constitutional amendment to address property tax relief. This is probably the easiest way for this amendment to make its way into the 2026 ballot.

But, after that, the amendment must get 60% approval from voters. And, that’s a very high bar to clear. There were attempts to provide property tax relief in other states. For instance, North Dakota failed to repeal property taxes in its November elections of 2024.

Repealing property taxes completely will be a very hard sell to voters. Floridians may reject it if they don’t get assurance for funding police, schools and firefighters. Likely, some partial property tax relief has higher chances of getting passed.

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On top of it, repealing property taxes completely may have unintended consequences. There could be a flood of demand for Florida’s real estate from consumers and investors alike. Paradoxically, the property tax relief may actually increase home prices in Florida, which will offset it.

Concluding Remarks

Overall, Florida is in a strong fiscal position, especially compared to some other states. Since 2019, DeSantis has managed to increase Florida’s rainy day fund by $9.4 billion and paid down 41% of its state debt. This has saved millions of dollars in interest expense.

The hope is that the good times will continue rolling in. This will give DeSantis and his team an opportunity to find compromise and overhaul property tax laws. That way, Florida’s residents may finally get some tax relief.