The Property Tax Revolt Is Spreading—but the Replacement Plan Isn’t

As calls to reform or even abolish property taxes gain steam across the country, there’s a part of the conversation that’s been notably absent: a novel solution to replace the lost revenue.

Property taxes generate 70% of local revenue, 90% of school funding, and 25% of all state and local tax revenue in aggregate, according to Billy Hamilton, deputy chancellor emeritus, Texas A&M University. In Florida, where abolition of property taxes is currently on the table, that comes out to about $50 billion a year.

It’s a big hole to plug, and it underlines both the burden homeowners are currently shouldering and how hard it will be to fill that gap with anything more stable, equitable, or sustainable.

'Do you want to abolish property taxes?' is the wrong question

As affordability tightens, the idea of abolition has become a potent rallying cry. Ohio shows why that message is catching.

A grassroots push to “axe the [property] tax” has gained traction, particularly among some senior homeowners facing property tax bills as high as their mortgage once was.

This summer, in Mahoning County, the tax delinquency rate hit 18%, with more than $70 million in unpaid property taxes. In some neighborhoods in Youngstown, as many as 1 in 3 homeowners were behind. And in Cuyahoga County, values jumped 32% on average after reassessments, fueling a $60 million increase in past-due balances.

Under that kind of strain, it’s not hard to understand why voters reach for the most seemingly direct solution. But, experts warn, the slogan skips the only part that matters: the replacement plan.

“Taxpayers are being asked the wrong question,” says Manish Bhatt, senior policy analyst at the Tax Foundation. Instead, he says, they should be being asked if they’d rather pay higher sales taxes, higher income taxes—or for those with no state income tax, like Texas or Florida, pay one for the first time.

That’s because property taxes are the true lifeblood of local governments, funding everything from public safety, to roads, and schools. Just because property taxes disappear doesn't mean that the need for firefighters, police officers, public school systems, or roads go away, too. And if property taxes are cut, another revenue-generating device has to emerge to keep services funded and running.

The replacement math that repeal campaigns avoid

Some states have taken a swing at replacing property tax revenue, but few have succeeded.

Excise taxes

In 2024, Nebraska lawmakers floated higher cigarette taxes as a way to fund a goal of cutting property taxes by 40%. But, according to an analysis from Adam Hoffer, director of excise tax policy at the Tax Foundation, the tax base was far too small. 

Nebraska cigarette taxes raised about $52 million in 2024, while property taxes raised $5.3 billion—a gap of more than $5.2 billion.

Even if you could raise more in the short run, excise revenues (like the cigarette tax) are volatile and often shrink as demand ebbs and flows, making them a poor backbone for expenses that grow over time. And they don’t eliminate the cost so much as concentrate it, shifting a broad civic obligation from homeowners onto a much narrower group (in this case, people who smoke).

Sales taxes

Bigger swaps, like a sales taxes, run into a different problem: Local economies aren’t built the same. A sales-tax-heavy tourist county can raise far more revenue per percentage point than an agricultural county, for example.

Florida is a clear illustration. Replacing property taxes with sales taxes would require eye-popping rates even before you account for behavior changes. The statewide average rate would need to jump from about 7.02% to 15.34%, according to an analysis from Jared Walczak, vice president of state projects at the Tax Foundation.

It’s a concerning jump, but the real issue is the spread. A county like Jefferson could theoretically replace property taxes at a 9.8% sales tax, while Glades would need 32.5% because its taxable sales base is thin, his analysis found.

Income taxes

Income taxes look like the more “serious” replacement option because the base is broader than an excise tax and, in many states, large enough to raise meaningful revenue. But the trade-off is that income taxes come with their own economic and political distortions—and once they’re added, they rarely stay confined to the tidy “swap” voters were promised.

Bhatt points to New Jersey as the cautionary tale. 

The state adopted an income tax in the 1970s in part to provide property tax relief, but over time the swap proved hard to manage and hard to enforce, and today, New Jersey has one of the highest effective property tax and state income tax rates in the nation.

Tucson’s 'fee stack' shows how backfills actually happen

There are other tools to fill the gap, and a recent tax change in Tucson, AZ, offers a glimpse of what they can look like.

After facing a budget shortfall due to lagging sales tax revenues, the city council recently approved a package of fee and tax increases that’s expected to exceed $7 million annually.

Property tax reform wasn’t on the table. And to generate the revenue, the city raised the utility tax on providers from 4.5% to 5%, a cost that may be passed on directly to ratepayers. The hotel and RV lodging tax will climb to 9%, affecting tourists and temporary workers. And pawnbrokers and secondhand dealers will now pay $3 per transaction report, up from $1—a small change, but one that highlights how even administrative fees can be used to plug fiscal holes.

Meanwhile, the council is still debating a new 2.6% gross receipts tax on local advertising, an idea that has drawn early opposition from business owners.

It’s a prescient example of how narrow taxes can be an effective way to patch a budget gap, but they fall vastly short of functioning like a true replacement for the property tax.

For one thing, these tools are inherently piecemeal. Each tax or fee has a different payer base and a different vulnerability. If tourism dips, for example, revenues could drop suddenly. The same is true if a regulated industry contracts, or consumption patterns shift.  And while that volatility is manageable for a narrow program, it’s dangerous as the foundation for essential services like public safety, street maintenance, and schools.

The better question: 'Which replacement are you choosing—and who pays?'

Local costs aren’t likely to shrink anytime soon. After all, schools, fire and police departments, and public works divisions are all subject to the same inflation and rising costs as the rest of the economy.

That’s why Bhatt says voters need a way to evaluate the trade-offs of the property tax reforms that are currently on the table. 

His framework is straightforward: stability (will the money show up every year), transparency (can taxpayers see what they’re paying and why), local control (does the community retain decision-making), equity (who actually bears the cost), economic distortion (what behaviors the tax punishes or pushes elsewhere), and administrative complexity (how hard it is to implement and enforce).

By those standards, the property tax, as unpopular as it is, has a functional advantage: It’s tied to an immovable base, collected locally, and designed to fund ongoing services.

That’s not to say homeowners don’t need relief. They clearly do. But eliminating property taxes doesn’t eliminate the underlying cost of government—it just reallocates it. And that reallocation can shift a bigger burden onto a smaller share of taxpayers, whether it’s smokers (as in the Nebraska excise tax example), rural shoppers (as in the Florida sales tax example), or doubly on working homeowners (as in the New Jersey income tax example).

That’s why Bhatt’s warning is so important. He hasn’t seen novel approaches that keep communities funded without creating new distortions. But what he has seen is repeal rhetoric that skips the replacement plan. 

In his view, the honest ballot question isn’t “Do you want to abolish property taxes?” 

It’s: "Are you willing to pay higher sales taxes, higher income taxes, or adopt one for the first time—and accept the distortions those choices create?"