Mark R. Howard
A taxing topic
The more time you spend poring through data on how Florida taxes, the harder it becomes to think about the state's tax system in the terms that still dominate tax-related discussions.
Some business advocates like to tout Florida as a "low-tax" state, for example. But as a recent Florida TaxWatch publication comparing Florida with other states points out, Florida's lowtax reputation is a complicated issue.
In terms of money collected by the state, our tax burden is, in fact, low — per capita state tax collections (from the general sales tax, corporate income taxes, doc stamps and other transaction taxes) are about two-thirds of the national per capita average, the lowest per capita in the country aside from those in Georgia and New Hampshire.
But in terms of taxes collected at the local-government level (property tax, local-option sales taxes and other sources), Florida is much less low-tax, ranking 25th, according to TaxWatch. The state, in fact, "relies more heavily on local revenue to fund government than any other state."
Overall, combining taxes collected at both state and local levels, Florida ranks 36th in per capita tax collections — low, but not even among the lowest 10 states.
The ambiguity around the "low-tax" question creates problems for those who try to market Florida by using "low-tax" as a surrogate for "business-friendly." But it also creates problems for those who seem to feel that Florida undertaxes itself — people who tend to believe that government is the solution to all problems, and government needs more money.
Similarly, there's the "Florida's tax system is regressive" discussion. As traditionally defined, the system is "regressive" since transaction-based taxes — sales taxes, fuel taxes, etc. — fall disproportionately on poorer people. Some national studies, in fact, rank Florida's system as the second most regressive in the country, after only the state of Washington's. In Florida, says the Corporation for Enterprise Development, the poorest 20% pay 13.5% of their income in taxes, whereas the wealthiest 1% pay only 2.1%.
But how meaningful is the "regressive" label when the state exempts almost all basic necessities — residential rent, groceries, personal services like haircuts, and medical and hospital costs — from sales tax? Florida taxes motor vehicle fuels — a necessity — at higher-than-national-average rates, but there's another gray area. Some of the tax money goes to support public transit, and isn't the tax system supposed to create incentives for "progressive" behavior, i.e., driving less?
In addition, the "regressive" tag somehow loses some of its meaning since businesses — even with all the carve-outs, special exemptions, etc. — pay more than half (53%) of all state and local taxes in Florida. That's the 10th highest percentage in the country.
The biggest problem with the "regressive" label is Florida's massive tourism industry. Out-of-state visitors contribute, by some estimates, up to 20% of the general sales tax revenue the state collects. And those out-of-staters require very few of the services that are the most expensive for the state to provide — schools, colleges, prisons and Medicaid services. That means that tourists, along with creating jobs, essentially subsidize tax-funded services to Florida residents.
The late Arnold Greenfield, a Miami bond attorney and Tax- Watch research fellow, wrote in 1997 that, when tax collections from out-of-state tourists are figured in, the average annual per capita sales tax burden in Florida is less than a fourth of the annual per capita state income tax burden paid by residents of states with more "progressive" income tax systems. "These facts may help to explain why most Florida citizens, as opposed to editorial writers and government officials, are not clamoring for a radically revised state tax structure," he wrote. "Often, in a democracy, the common wisdom exceeds that of the intelligencia."
In any event, with an income tax prohibited by the state Constitution, Florida's reliance on sales and other transaction-based taxes is a given and will stay a given, regardless how some may like to daydream of a state income tax.
Florida's tax system faces plenty of challenges.
Because of growing internet sales and exemptions passed by the Legislature for the benefit of one interest or another, the base for the sales tax continues to erode. Over time, lawmakers (both federal and state) will have to find a way to tax internet sales more consistently, and to modernize taxes on cars, fuels and telecom — sectors that have experienced dramatic structural changes.
In addition, the Save Our Homes amendment has created big distortions and inequities in the tax system. That one will be tough to fix.
In general, however, Florida isn't too poorly served by how we tax ourselves. And rather than debate the low-tax-or-not question or bemoan regressivity, a better way of looking at taxes might be to stick with how Florida's tax system performs compared to those in other states. Consider a couple of benchmarks: Do overall tax revenues in Florida keep pace with population growth, for example — the answer is yes. And does Florida's tax system produce disproportionate declines in revenue during economic slowdowns — the answer is no.
With any broad changes in the tax system likely to remain taboo for the foreseeable future, those wanting increased public funding for specific, legitimate needs will have to make their case, as Greenfield wrote nearly 20 years ago, on the merits — "not on the basis of the mythological advantages of tax reform." As a wise politician once told me, people aren't necessarily averse to higher taxes, "they just don't want to pay more for more of the same."