"This system does not mirror Florida's current economy and is too subject to economic fluctuations," he explains. "It's not capable of meeting Florida's long-term needs."
The state's 6% sales tax brings in about $17 billion, but some $23 billion in transactions are exempt from the tax. In 1968, the sales tax applied to 68% of Florida's economic activity. Today, however, it applies to only 55%; much of the taxation falls on tourists and fails to capture large chunks of the state's services-driven economy. "We are increasingly dependent on a relatively shrinking resource," he says.
Speaking around the state last fall to carefully selected business groups, McKay laid the groundwork for reforming the tax system. His plan would place a constitutional amendment on the November ballot that would reduce the state's sales tax rate from 6% to 4% and broaden the base by levying the sales tax on hundreds of goods and services that are now exempt -- such as haircuts, lawn care and legal services.
McKay's plan echoes arguments of vanquished tax reformers before him. Like Jim Smith, the former secretary of state, attorney general and gubernatorial candidate, McKay proposes making the tax reform "revenue neutral" -- ensuring the new tax system collects no more revenue at its inception than the system it replaces. Like Bob Nabors, the lawyer-lobbyist and 1998 Constitutional Revision Commission member, McKay proposes putting a stripped-down sales tax in the state constitution and leaving specific exemptions up to the Legislature.
Like Larry Fuchs, the former state revenue department chief, McKay warns that the coming losses from internet sales and federal elimination of the estate tax will create a giant hole in the state budget -- to the tune of some $4 billion, says McKay. Like Bob Martinez, the Republican governor whose failed 1988 tax crusade led to his defeat, McKay proposes expanding the tax to services. And like Lawton Chiles, the late Democrat governor, McKay uses the recession-battered economy to validate his call for reform.
The plan
McKay's plan would work like this: If approved by the Legislature this year, a constitutional amendment would be placed on the November ballot that would lower the sales tax rate and eliminate most exemptions. A handful of categories would continue to be exempt, such as groceries, prescription drugs, healthcare, residential rent and basic phone service. It would be up to the Legislature to determine other exemptions.
In addition to rolling back the sales tax rate from 6% to 4%, McKay's plan would eliminate what he calls "antiquated and inefficient taxes" -- the tax on alcohol by the drink, the tax on hospital beds to pay for indigent care, the intangibles tax on investments and the sales tax on utilities paid by businesses (which would not be eliminated, but lowered from 7% to 4%).
Ever mindful of anti-tax critics, McKay insists the proposal is not a tax increase. "This is an initiative for smarter government, not bigger government," he says. To underscore his point, the amendment would make it harder to raise taxes in the future by requiring a three-fifths vote of both the House and Senate to raise the sales tax or create a new exemption.
McKay, who needs a two-thirds vote of both the House and Senate to get a constitutional amendment on the ballot, is ready to use every political lever at his disposal. He has hired the economics consulting firm of Fishkind & Associates to provide data to counter arguments the tax change will hurt businesses. He also has named Sen. Jack Latvala, a Palm Harbor Republican and one of McKay's top lieutenants, as chairman of the Senate subcommittee on congressional redistricting. In that role, Latvala can draw a district that either benefits or harms the congressional aspirations of House Speaker Tom Feeney, who would rather eliminate taxes than broaden the state's tax base.
Gov. Jeb Bush has made it clear he doesn't want tax reform on the ballot as he seeks re-election because some may think it means tax increases. The governor can't sign or veto a constitutional amendment proposal, but his opposition could make it difficult to get the votes in the freshman-dominated House. Here again McKay can use reapportionment as a bargaining chip.
Uphill battle?
With the chilling effect of the terrorist attacks, the rise in demand for state services and the growing state budget deficit, many believe McKay stands a better chance at achieving reform than his predecessors. "There's a wider awareness that the economic situation we're in now has created a financial problem that's very hard to get out of and maybe it's time we cast the net wider," says Latvala.
Lance deHaven Smith, professor of public policy and administration at Florida State University, thinks McKay stands a fighting chance: "We haven't had the stars line up this way in a long time," he says. But he and many others think McKay's chances are slim of defeating the speaker, the governor and powerful interest groups ready to spend millions to squash the plan.
Jim Smith, the former Cabinet official who proposed a revenue-neutral tax reform while running for governor in 1994, commends McKay but adds, "It's going to be very difficult to persuade Gov. Bush or Speaker Feeney to endorse any change in the tax scheme. ... Once (Bush has) established his position, he's difficult to change."
History also is against McKay. According to the National Conference of State Legislatures, tax reform in most states succeeds only when the state is desperate for more money, which McKay's revenue-neutral approach doesn't address.
McKay, who will retire because of term limits this year, says he will succeed at persuading his colleagues. "I think it would be very hard to go to constituents and say 'I voted against lowering your taxes from 6% to 4%,' " he says. "People can say 'You're now taxing me on my legal fees and haircuts,' but if you buy a $25,000 car, you just saved $500."
Forces in Tallahassee may kill tax reform again this year, but McKay has enough armor that the effort won't die without a bloody, Republican battle.