There has recently been an increasing pushback on property taxes across the country. In November 2024, multiple states including Arizona, Florida, Georgia, New Mexico, Virginia and Wyoming had ballot initiatives passed designed to lower property taxes. Now, Florida lawmakers have taken it one step further by proposing to eliminate property taxes altogether. This begs the question if this is feasible, and if so, how would states generate revenue without property tax revenue? 

Over the last few years, property values have skyrocketed. With property taxes tied to a building’s value, this increase has caused a similar increase in property tax assessments. Lawmakers have felt pushback from constituents who are upset about the tax increase on real estate properties. This often leads to increased homestead exemptions, such as Florida’s recent changes, or exemptions for disabled veterans, as occurred in Colorado, New Mexico and Virginia. Most of these exemptions or changes apply primarily to owner-occupied homes and rarely extend to business assets. 

North Dakota attempted to take this one step further. A ballot measure in North Dakota designed to eliminate property taxes failed after pushback over the spending cuts this would require. This scenario is similar to a measure attempted in 2012, which also failed; however, it is important to know that the 2024 ballot measure was much closer, with only 63.5% voting against, as opposed to 76.5% voting against it in 2012. The increased pushback on property taxes was especially notable when North Dakota Governor Kelly Armstrong unveiled a plan in January to eliminate property taxes for most homeowners within the upcoming decade. 

Florida Governor Ron DeSantis followed suit and is pushing for elimination of property taxes across the state. As a state without an income tax, this could be detrimental to state funding. Property taxes in Florida bring in approximately $50 billion annually, which offsets 50% to 60% of school funding, 18% of county revenue and 17% of municipal revenue. While eliminating the property tax burden sounds good in theory to citizens, making up the gaps in funding becomes an issue. One way to make up this funding deficit would be to increase the sales tax. Unfortunately, to make up the revenue difference, Florida’s sales tax would have to double to nearly 12%.   

Increasing sales taxes to offset property taxes can have negative effects. Sales taxes disproportionately affect lower-income earners as they spend a higher percentage of their income on goods and services than higher-income earners. Additionally, this could exacerbate inflationary pressures already felt across the country. Potentially more important to the government is that sales tax revenue tends to be less stable than property tax revenue. In economic downturns, sales tax revenue drops, leading to increasing instability for the state. 

Another option states should consider is continuing to increase homestead exemptions for homeowners, or look to eliminate property taxes for homeowners, similar to the proposals North Dakota’s governor proposed. One problem with this proposal is that it shifts the tax burden to businesses from individuals. This could be detrimental to states attempting to attract business investment. Shifting the burden of taxation solely to businesses could make owners question putting down roots in specific locations.

All considerations regarding how to change a state’s property tax revenue reveal how much of a burden it has become in recent years. Increasing costs of homes continues to lead to skyrocketing tax rates affecting homeowners, businesses and governments across the country. What is a business owner or their advisor to do in the meantime? The worst thing a business owner can do is to sit back and wait to see if the government will change its position on property tax. If the North Dakota example shows anything, it is that changing property tax structures is difficult and takes time.   

A first step business owners should consider is to question their property tax assessments. What many taxpayers do not realize is that their property tax assessment can — and in many cases should — be reviewed and appealed. With property taxes becoming a much higher burden on businesses and individuals, it’s a perfect time to look to determine if a property is accurately assessed. A qualified property tax consultant can look to determine if the property is accurately assessed or overassessed based on multiple factors. Questioning and appealing assessed values can allow building owners to gain control while waiting to see if local governments will change the way property taxes are levied.

The chair of the House’s tax-writing panel said the $30,000 limit his committee put on the state and local tax deduction is “fair” and lawmakers from high-tax states should accept it.

“It’s not everything that some of the SALT members want, but I have members of our conference that don’t even think that you should be able to deduct $1, let alone $30,000. It’s a fair and balanced approach,” Jason Smith, chair of the House Ways and Means Committee, said Thursday at an Economic Club of Washington, D.C. event.

Demands from New York, New Jersey and California Republicans for a higher limit are one of the few unresolved issues preventing Republicans from advancing President Donald Trump’s economic legislation. Without the SALT lawmakers’ votes, Republicans cannot pass the tax bill.

Smith said he thought his panel had landed on a “good spot.”

Smith spoke a day after his panel advanced the tax-cut portion of Trump’s signature economic legislation, aimed for final passage this summer. The bill would make permanent the individual tax rates reduced in Trump’s 2017 package, and introduce new benefits, including eliminating levies on tips and overtime pay.

Given Republicans’ razor-thin majority in the House, party unity will be vital. But sharp differences over SALT have to be resolved before the economic package is put up for a vote in the House. The current draft raises the cap on that benefit to $30,000, up from a $10,000 limit imposed in 2017, with a phase-out for individuals making more than $200,000 a year and couples making more than $400,000.

Several Republicans from high-tax states have called to increase the cap as high as $62,000 for individuals and $124,000 for couples, a proposition that the Committee for a Responsible Federal Budget estimates would cost $900 billion over the course of a decade.

Smith has criticized those demands, saying the vast majority of taxpayers in high-tax areas would have all their state and local tax payments covered by a $30,000 cap.

Negotiations over SALT are slated to continue Thursday morning in House Speaker Mike Johnson’s Capitol Hill office. Members of the hardline House Freedom Caucus, who are pushing for more spending cuts are also planning to meet with House leadership to seek additional budget reductions.

“We have the smallest majorities in the history of congress,” Smith said. “I could only lose three people. So trying to thread that needle on various provisions including SALT and find that balance is what I’ve been trying to do in this bill.”

The cost of Republican lawmakers’ draft plan for sweeping tax cuts weighed in at $3.8 trillion over the next 10 years in one official estimate. The reality is likely much higher, thanks to the use of budget and political tools designed to minimize the appearance of the fiscal hit, according to independent analysts including former Republican staff members.

Budget experts typically calculate the cost of legislation, or “score,” over a 10-year period. But President Donald Trump’s headline-grabbing pledges to remove taxes on tips and overtime are supposed to expire after just four years in the latest bill. That has the effect of downplaying the potential revenue loss if the measures are extended — which Congress has a tendency to do.

It could also raise concerns among investors and economists about the scale of future borrowing needs for a government whose debt load is on track to surpass 118% of the economy’s size by 2035, potentially undermining confidence in U.S. securities.

Republicans are quick to defend the size of the tax cuts, saying they will grow the economy and, with Trump’s tariff policies, bring in trillions of dollars of added revenue to federal coffers — along with savings found by the Elon Musk-led Department of Government Efficiency.

Speaker Mike Johnson is aiming to secure House approval later this month for a bill that, along with providing Trump’s new benefits, makes permanent the lower income-tax rates set in Trump’s 2017 package. Those rates had been scheduled to expire at the end of this year — something that had limited the official cost of that package in Trump’s first term.

Analysis by the Committee for a Responsible Federal Budget, a centrist fiscal watchdog group, shows that extending the new benefits for a full decade would take the cumulative increase in the deficit to $5.2 trillion. That compares with an official congressional Joint Committee on Taxation tally of $3.8 trillion. After factoring in spending cuts in Medicaid and other items, the CRFB estimated the deficit boost at $3.3 trillion.

While both Republicans and Democrats have previously used budget tricks to portray a better fiscal impact, the scale of the potentially hidden effects of the GOP tax package is striking, said Marc Goldwein, senior policy director at the CRFB. 

“The entire reason they did this temporarily was to reduce this cost,” Goldwein said. “They are basically trying to hide” the additional costs, he said.

Trump and his cabinet members have argued that official scoring fails to capture hundreds of billions of dollars of future revenue from increased tariffs. They also claim that the administration’s deregulatory agenda will lift burdens on businesses, boosting growth.

“It’s going to go gangbusters,” Jason Smith, the GOP chair of the tax-writing House Ways and Means Committee, said of the economy after the tax bill is enacted. Speaking at an Economic Club of Washington, D.C. event Thursday, he cited measures including 100% expensing of certain business investments and incentives for building factories, along with a lower burden on so-called pass-through businesses. There’ll be a “huge impact to the economy,” he said.

GOP’s argument

Smith also claimed that the $1.5 trillion of spending cuts penciled in for the bill, if followed through on, would be the largest reduction of any bill in legislative history. He disputed critics saying tax cuts will balloon the deficit, arguing that spending is the problem.

Federal revenue makes up about the same share of GDP now, at around 17%, as its average over the past 50 years, and most of the current bill simply extends current tax laws, Smith said.

The combination of Trump’s tax cuts, savings and deregulation means a more likely deficit impact of below $2 trillion over the coming decade, Richard Stern, a fiscal expert at the Heritage Foundation, a conservative-leaning think tank.

“The spending cuts are not going to hold back growth — they are not cutting critical services or going to hold back business flows,” Stern said. “These are cutting largely wasteful and fraudulent spending.”

Unsustainable path

Even without adding to U.S. borrowing needs, the existing run rate has the federal debt burden on a trajectory that most observers, including Treasury Secretary Scott Bessent, view as unsustainable. Annual deficits have been clocking near $2 trillion in recent years, or more than 6% of gross domestic product.

The debt-to-GDP ratio is heading for a record high in just four years’ time, according to the nonpartisan Congressional Budget Office.

Trump has dubbed the legislation, which includes a slew of spending reductions yet to be specified in detail, “one big, beautiful bill.” Barclays Plc economists on Wednesday titled a research note on the topic, “One big, beautiful” deficit. “Investors in longer U.S. bonds are unlikely to be happy,” they wrote.

By the calculation of G. William Hoagland at the Bipartisan Policy Center, sunsetting many of Trump’s new benefits after four years, the tax bill saved roughly $500 billion.

The draft bill has a deduction for senior citizens sunsetting in four years, with an expanded child tax credit of $2,500 ending Dec. 31, 2028.

“This is an old trick the tax writers do,” Hoagland, a former congressional Republican staff member, said of phasing out a benefit. “From a fiscal perspective, it underestimates the real cost of these bills.”

Rohit Kumar, national tax office co-leader at PricewaterhouseCoopers LLP and a former top Senate policy aide, said that if provisions prove “super popular, whoever’s running for president in 2028 can run on renewing them.”

The other way lawmakers tried to cut the bill’s cost was “to put the guardrails around who qualifies,” Kumar added. This included adding income limits for a new deduction aimed at retirees, as well as detailing which industries were eligible for the no-tax-on-tips provision.

Ultimately, the four-year timeline for when the tax cuts expire will only stoke uncertainty for both businesses and individuals, said Goldwein at the CRFB.

“How can you plan around a tax code when large parts of it expire in four years,” he said.