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Sales tax vote postponed
By Steve Bousquet, Tallahassee Bureau Chief
Published February 13, 2008
TALLAHASSEE - A plan to ask Florida voters to swap school property taxes for an expanded sales tax stalled Tuesday when a pair of economists told a powerful tax commission that the change could cost 53,000 jobs a year.
The unexpected testimony prompted the plan's sponsor, former Senate President John McKay of Bradenton, to postpone a vote by a committee of the Taxation and Budget Reform Commission rather than risk a negative vote. The commission meets every 20 years under the Constitution to review the state's fiscal structure.
McKay, who describes his plan as major property tax relief, openly questioned the economists' findings. He said they didn't consider that dramatically lower property tax bills for all property owners might stimulate the economy and offset the negative economic effects of a broader sales tax base.
"I can't accept this without further explanation," said McKay, who like other committee members received the economic study the day before.
McKay's plan would cut property taxes statewide by an estimated 25 percent or $8-billion a year by eliminating property taxes for schools. He proposes replacing it with sales taxes levied on goods and services now excluded, such as dry cleaning or charter fishing.
McKay appeared to have a majority of the 11-member committee on his side until the economists hired by the commission, Tony Villamil and Robert Cruz, said that eliminating tax exemptions or taxing services could cause a net annual loss of 53,000 jobs and reduce the state's gross domestic product by $2-billion a year.
"There is a stimulus to the economy," Cruz said of a cut in property taxes. "But the negative effect of the increases in the sales tax offset those."
Villamil, who was an economic development adviser for Jeb Bush when he was governor, said the estimate came from a model that assumes that as the price of a service goes up as a result of being taxed, demand for it drops.
The economists' testimony caught McKay off guard. He asked that a vote on his proposal be delayed until Feb. 25 when two other economists with a more positive assessment of the effects of McKay's plan can testify.
The hiring of Villamil's firm, the Washington Economics Group of Coral Gables, was made by committee chairwoman Susan Story and the head of the 25-member commission, former House Speaker Allan Bense, and may yet prove controversial.
Panel member Jim Scott, a former Senate president who supports McKay's effort to provide property tax relief, said: "I never heard of this until today. I didn't even know he was on board doing this."
The economists' dire warning emboldened critics of McKay's proposal. "I have been telling you people for a long time that taxing services is not a good idea," said committee member Randy Miller, a lobbyist for the Florida Retail Federation.
Before the economists testified, panel members debated the state's long-range revenue needs and the wisdom of taxing services, which Florida did two decades ago but repealed the policy six months later.
Committee member Patricia Levesque, a new small-business owner, opposed taxing companies like hers, and suggested legislators be directed to cut the budget instead. But Scott said the state lacks the money to meet its needs in transportation and higher education.
The 11-member committee did pass a proposed constitutional amendment that would require the Legislature to take an individual roll call vote on whether to repeal all of the scores of exemptions now on the books. A related proposal to require a legislative review of tax-exempt services was taken out.