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Slim tax base intensifies budget woes
The Senate president is now forced to fix a problem that he tried to warn was coming.
By STEVE BOUSQUET, Tallahassee Bureau Chief
Published October 7, 2007
Senate President Ken Pruitt, left, talks with Sen. Daniel Webster during budget discussions Friday in the Florida Senate.
[Scott Keeler | Times]
TALLAHASSEE - Five years ago, state Sen. Ken Pruitt sounded a dire and prophetic warning about Florida's future.
"The sales tax must be reformed if it is to meet our needs in the years to come," Pruitt warned fellow lawmakers as he called for sweeping changes to the tax system.
The plan Pruitt embraced in 2002 would have lowered the statewide sales tax rate from 6 percent to 4.5 percent and expanded the sales tax base to include billions of dollars worth of tax-free professional services.
It was an audacious move. After all, many of the services Pruitt and fellow Republicans said should be taxed were used by wealthier people - everything from accounting to safe deposit boxes, dry cleaning to charter fishing boats.
The idea, launched only months after the 9/11 attacks had bruised tourism in Florida, failed miserably under fierce opposition from Gov. Jeb Bush and a cohesive business lobby, who called it a back-door tax increase.
Now, five years later, Pruitt, a Port St. Lucie Republican, is president of the Senate and in the midst of a special session to trim more than $1-billion from this year's budget - and at least that much next year.
The main reason for the cuts is a dropoff in sales tax collections that pay for everything from library books to state troopers' salaries.
The Legislature's economists have attributed the budget shortfall to a prolonged housing slump, which they say has sapped consumer confidence, leading to fewer sales of taxable items such as cars and appliances.
"I believed it then," Pruitt said when asked about his passion for an expanded tax base in 2002. "At the same time, we're here to face the budget cuts. We're not about raising taxes."
One of the main arguments Pruitt and others used in 2002 was that Florida's reliance on the sales tax makes the state highly vulnerable to sudden economic shocks, such as the current slack housing market.
A broader tax base would insulate the state from the whiplash effect of a housing slump, they argued, because people always hire lawyers, accountants and architects.
Sen. Lisa Carlton, R-Osprey, who's now in charge of deciding what programs to cut, joined the chorus of senators demanding a broader tax base in 2002.
"We can't pay our own bills," Carlton said at the time.
The nearly 250 exemptions and exclusions from the 6 percent statewide sales tax would create an estimated $12-billion of revenue this year. The most sacred exemptions are groceries, prescription drugs, household rent and utilities, which no one has suggested taxing.
But Florida also exempts from taxation an array of items that hardly can be considered necessities. They include out-of-state sales of boats and planes $74-million; trips on charter fishing boats ($64-million); bottled water ($42-million); newspaper and magazine inserts ($41-million); livestock feed ($28-million); and college and high school stadium sky boxes ($1-million).
That's literally not the half of it.
Separate from the sales tax exemptions are an additional $23-billion worth of exemptions for professional services.
They range from haircuts to limousine rides, accounting to architectural design, engineering services to legal advice and pest control to TV ads. All are tax exempt.
Those are the items Pruitt and his colleagues sought to make taxable five years ago.
Term limits, which limit lawmakers to eight years in one office, also play a role in the Legislature's opposition to reviewing the tax code.
Nearly half of today's lawmakers weren't even in the Capitol on that day in January 2002 when Pruitt issued his call for a reform of the sales tax.
In 2007, it is Democrats who are calling for a broader sales tax base or for elimination of sales tax exemptions.
Most Democrats voted against the budget cuts on Friday, saying Republicans refused to even allow a discussion of ending business-friendly tax breaks.
"We've missed a good opportunity to examine closing some of these sales tax loopholes," said Sen. Ted Deutch, D-Delray Beach.
Republicans accused Democrats of playing politics, noting that for all their rhetoric, Democrats do not file bills calling for the elimination of tax breaks.
In fact, the only such bill filed in the Senate in 2007 was by a Republican, Sen. Bill Posey of Rockledge, to end tax breaks for ostrich feed and stadium skyboxes.
The bills went nowhere, and now lawmakers are bracing for even deeper budget cuts in the months to come.
"This is just the down payment of what we're going to be seeing," Pruitt said Thursday. "Families in Florida are feeling the downturn in Florida, just like state government is."