Weak tax base will have state suffering

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© St. Petersburg Times,
published October 7, 2001

TALLAHASSEE -- From a wire service report that appeared in the New York Times:

ALBANY, Oct. 11 (UP) -- The chairman of the state Legislature's Committee on Problems of the Aging today warned retired New Yorkers planning to live in Florida that conditions for senior citizens there, although improving, were "still below desirable standards."

Sen. Thomas C. Desmond said he noted two years ago that Florida was luring retired persons without providing adequate services and facilities for them . . .

The story was published, of course, so many years ago -- 45, to be exact -- that the United Press had not yet become United Press International. But if Sen. Desmond could have read the Page 1-B headline in this newspaper just two days ago, he'd be saying, "I told you so."

"Memory clinics atop cut list," the headline said. The story said Florida is so short of money that it's preparing to halt all state funding to its 13 memory disorder clinics and to the day-care centers and respite programs that help family members cope with Alzheimer's disease.

The more some things change, the more they stay the same. More than four times as many people live in Florida as in 1956, yet the state's budget is still as dependent -- some say more so -- on a sales tax base that collapses whenever tourists stop buying T-shirts, and recession-wary residents become fearful to borrow for new cars, appliances or furniture.

No state is more vulnerable to economic cycles or disasters beyond its control. Only two states, Washington and Tennessee, depend on sales taxes for larger shares of their budgets, and both of those could tax incomes if their legislatures chose to. Florida's Constitution rules that option out. We tax corporate profits, thanks to a reform sponsored by Gov. Reubin Askew in 1971 -- but it's a drop in the bucket.

Every state will suffer in the coming months but none so much as Florida. How did this mess come to be?

It began in 1924, when voters went more than 4-1 for the Legislature's proposal to amend the Constitution to bar an income tax. Florida was in the midst of a land boom and needed more Yankees to keep it going. The boom burst anyhow less than two years later. Many thousands of properties were abandoned and eventually sold for taxes.

The Great Depression put the state into such bad financial shape that many legislators sought, in 1935 and again in 1937, to repeal the amendment that had seemed so sensible in 1924, "when," said Rep. John L. Early of Sarasota, "we were all crazy." Sensing a sales tax in the future, some also argued for taxing incomes "to avoid a sales tax on the poor man without a compensating tax on the rich man," as Rep. Dwight L. Rogers of Broward put it.

They were thwarted by bitter resistance from business interests led by Ed Ball, whose control of the estate of his late brother-in-law, Alfred I. du Pont, made him the most powerful figure in Florida. Ball, a true fiscal fascist, also wanted to abolish the state tax on real estate, saving millions of dollars for the timber lands owned by the estate's paper company, and to pass a sales tax so that the Legislature would not be tempted ever gain to tax income or wealth. By 1941 he had succeeded in repealing the property tax.

Excise taxes carried Florida through the war years, but by 1949 Gov. Fuller Warren was telling the Legislature of a paradox that would confound many of his successors. In a time of "abundant prosperity," the state government was "almost insolvent." Warren had promised to veto a sales tax, but when the Legislature defeated all his proposals to tax banks, utilities, phosphate companies and other special interests, Warren had no choice but to call lawmakers into special session to balance the budget with a sales tax. Imposed then at 3 cents on the dollar, it is now 6. But as only merchandise is taxed -- with many exemptions crafted by special interests -- the loopholes substantially outweigh the yield.

Gov. Bob Martinez, a Republican, persuaded the 1987 Legislature to tax services. His reasoning resonates today.

"If revenues are to keep pace with growth over the long term," he said, "then we must extend the sales tax to services. The demand for services is much less subject to fluctuations in the economy than the demand for goods. If revenues are to be stabilized in the face of economic downturns over the long term, then we must extend the sales tax to services.

"Purchasers of services are more affluent as a group than the population as a whole. If we are to make our tax system more fair over the long term, then we must extend the sales tax to services."

But he succumbed, as did the Legislature, to relentless pressure from special interests. The broadcasting and publishing industries, resenting a tax on advertising, were the most shameful. The services tax was rescinded in favor of a penny increase in the tax of goods.

Gov. Lawton Chiles talked often of retracing Martinez's steps but could find no takers in the Legislature. The Taxation and Budget Reform Commission of 1992 managed to reform the budgeting process but not taxes. There were members, among them Tallahassee attorney Martha Barnett, who had wanted to do both, but the commission was too top-heavy with lobbyists to reach any consensus on tax reform. Chiles himself reigned in members who wanted to pursue an income tax; he feared any such ballot proposal would help elect a Republican Legislature, which eventually happened anyhow.

"Intellectual property and information are the currency now, yet we only tax commodities," says Barnett.

Senate President John McKay is talking about tax reform in much the same way as Martinez and Chiles once did, but it takes three to tango in Tallahassee. The other dance partners, Gov. Jeb Bush and House Speaker Tom Feeney, talk about tax reform as if they were governing the planet Mongo.

As Florida State University political scientist Lance deHaven Smith said recently, "There's an old saying in Tallahassee: "Don't tax you, don't tax me, tax the guy behind the tree.' "

"That guy behind the tree is a tourist."

What happens when there's nobody behind the tree?

Florida is about to find out.

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