Rockwall Voices Op-Ed
Incentives, Fairness, and a Consumption-Based Alternative
Property taxes occupy a peculiar place in modern public finance. Unlike income taxes, which are tied to earnings, or consumption taxes, which are tied to behavior, property taxes are levied simply for owning an asset, more often than not, one that has already been taxed multiple times. The result is a system that punishes stability, discourages long-term ownership, and introduces distortions that disproportionately affect retirees, fixed-income households, and small business owners.
To understand why this matters, it is useful to revisit a simple but powerful framework articulated by Milton Friedman regarding how people behave depending on whose money they are spending.
Friedman outlined four distinct ways money can be spent:
Your money on yourself – You are careful about both cost and quality.
Your money on others – You are careful about cost, but less about quality.
Someone else’s money on yourself – You care about quality but not cost.
Someone else’s money on others – You care about neither cost nor quality.
Friedman argued that the fourth category best describes how government spends money. This is not a moral critique; it is an incentive-based one. When decision-makers are insulated from both the cost of funds and the direct consequences of inefficiency, waste becomes structurally inevitable.
Property taxation sits squarely inside this fourth category.
The Structural Problem with Property Taxes
Property taxes are assessed and spent by entities that do not bear the cost of the taxation, nor directly experience the economic consequences of overreach. The homeowner or business owner does. This creates three fundamental issues.
First, property taxes are disconnected from liquidity. A homeowner may see their tax bill rise due to market appreciation without any corresponding increase in income. In effect, the government becomes a silent equity partner with a perpetual claim, one that never sunsets and never adjusts for ability to pay.
Second, property taxes penalize capital formation and stewardship. Improving a home or expanding a business often results in higher assessments and higher taxes. This discourages reinvestment and rewards underutilization.
Third, property taxes distort local decision-making. Municipalities become incentivized to chase rising valuations rather than economic productivity, leading to zoning inefficiencies, housing shortages, and resistance to affordability initiatives.
These outcomes are not failures of intent. They are failures of incentive design.
Why Consumption Taxes Align Incentives Better
Consumption-based taxes, such as sales taxes, value-added taxes, or targeted excise taxes, operate under a fundamentally different incentive structure.
They tax behavior, not existence.
When revenue is tied to consumption:
- Individuals retain control over their tax exposure.
- Economic participation, not asset ownership, becomes the taxable event.
- Government revenue grows with economic activity rather than paper appreciation.
Most importantly, consumption taxes partially shift spending decisions closer to Friedman’s first and second categories. Citizens feel the tax at the point of transaction. That visibility creates natural resistance to excessive rates and encourages scrutiny of public spending.
A tax you see is a tax you question.
Addressing the Regressivity Argument
Critics often argue that consumption taxes are regressive. This concern is valid, but not fatal.
Modern tax systems already include mechanisms to offset regressivity:
- Tiered or exempt categories for necessities.
- Rebates or credits for low-income households.
- Progressive income tax overlays that rebalance overall burden.
By contrast, property taxes are regressive in a quieter, more dangerous way. They extract wealth regardless of cash flow and disproportionately affect those who are asset-rich but income-poor—particularly seniors.
A well-designed consumption tax system can be calibrated. A property tax system cannot.
Government Spending and the Incentive Gap
Returning to Friedman’s fourth category, someone else’s money spent on others, the challenge is not the existence of government, but the absence of feedback loops.
Consumption taxes introduce friction. Friction creates accountability.
When voters feel taxes daily, rather than annually through escrow statements or opaque assessments, spending priorities shift. Waste becomes politically expensive. Efficiency becomes electorally valuable.
Property taxes, by contrast, are abstracted, normalized, and often misunderstood. They enable budget growth without proportional scrutiny, reinforcing exactly the incentive structure Friedman warned against.
A Transition, Not a Shock
Abolishing property taxes does not require fiscal recklessness. It requires transition. Municipalities could:
- Gradually reduce property taxes while increasing consumption-based revenue.
- Shift school and infrastructure funding to broader tax bases.
- Decouple public services from asset ownership and re-anchor them to economic participation.
This is not radical. Many countries already rely far less on property taxation than the United States, with no collapse in public services.
Tax What We Do, Not What We Own
Property taxes represent an outdated approach to funding modern economies. They violate basic principles of incentive alignment, fairness, and transparency.
Milton Friedman’s insight was not ideological, it was behavioral. People respond to incentives. Governments are no exception.
If we want smarter spending, we must design smarter taxation. That begins by taxing consumption, what we choose to do, rather than property, what we have already earned, bought, and paid for.
The question is not whether government should collect revenue. The question is whether it should do so in a way that rewards productivity, respects ownership, and restores accountability.
Abolishing property taxes is not about shrinking government. It is about aligning incentives, so government works better.
About the Author:
David Vega is the founder and CEO of Rockwall Capital Group, with over 25 years of experience in business leadership, corporate turnarounds, and financial strategy. He is the author of Fool for Thought, a book centered on reflection, decision-making, and the incentives that shape individual and institutional behavior. David serves on corporate advisory councils and is actively engaged in community leadership, including board roles with the North East Texas Community Development Corporation, the Greater Rockwall Youth Symphony, and the Park Board for the City of Heath.
Disclaimer: The views and opinions expressed in this Op-Ed are those of the author and do not necessarily reflect the official stance of The Rockwall Times. We encourage a respectful exchange of perspectives to enrich our community dialogue.
