State: Senator on mission for tax reform

TALLAHASSEE -- For the past year, state Senate President John McKay has been on a lonely mission, telling anyone who would listen that Florida must revamp its unfair "horse and buggy" tax system that dates to 1949.

The mere mention of such a dry subject was usually enough to clear a room, but the effects of the terrorist attacks have sent Florida's tourist-dependent economy into an ominous tailspin. Widespread layoffs are feared, jobless claims are approaching record highs, and lawmakers will soon hold a special session to consider cuts in such basic services as schools, courts and health care.

The sluggish economy is usually blamed, but McKay says the real culprit is Florida's consumption-based tax code that has not kept pace with the times. With a gaping hole in the state budget, talk of tax reform doesn't seem quite so abstract.

"We have a tax system that was originally constructed in the 1940s, and we don't have a 1940s economy," McKay says.

The Bradenton Republican's idea is to extend the state's 6 percent sales tax, applied to goods such as cars, appliances and clothes, to various items and services that are now exempt. Everything from Super Bowl tickets to ostrich feed escapes tax under the current state code.

Without fanfare, McKay brought his tax-reform proposal to a convention of about 300 beverage retailers at a hotel in Clearwater last week. Some in the audience said McKay offered a fuller outline of his plan than he has divulged previously.

They said McKay proposed reducing the state sales tax from 6 to 4 percent while wiping out many existing exemptions, and requiring a three-fifths vote of both houses of the Legislature to raise the sales tax or create new exemptions.

McKay cited a revealing statistic: Tax-exempt goods and services are growing at a faster rate than taxable items.

According to a 2000 legislative study, removing exemptions to the 6 percent sales tax would have produced more revenue ($21-billion) than the tax itself ($17-billion). In the study, the exemptions take up 11 full pages of text. A decade ago, the tax produced slightly more money than taxing the exemptions would have.

"He started laying out all these specifics," recalled Steve Knopik, president of Beall's Department Stores, a nationwide chain based in Bradenton, who was in the audience at the Sheraton Sand Key Resort. "But even before the events of the middle of September hit the radar screen, there were signs of weaknesses in the economy and the budget."

In his talk, McKay did not enumerate which specific exemptions should be closed, and no one is suggesting removing the biggest exemptions, for groceries, medicine and rent. But Knopik said McKay was persuasive.

"I know we're committed to having a tax system based on the sales tax, but you hate to have it tied so strongly to tourism and consumerism," Knopik said.

McKay declined to be interviewed for this article. His spokeswoman, Carole Strange, said McKay wanted to focus on shaping the agenda for a special session to deal with closing the budget shortfall estimated at more than $1-billion for this year, along with emergency steps to kick-start the economy.

Gov. Jeb Bush says McKay's tax reform ideas should be debated, but he made it clear that that debate should be held later, not now.

"His idea deserves a fair hearing, but it should not be attached to the current economic situation," Bush said. "The underlying impression one would get if we did that is that we need more revenue -- and that leads me to believe that what would be advocated is a tax increase. And in uncertain economic times, we should not be raising taxes."

The governor added: "Having said that, the question of tax reform as it relates to equity, as it relates to our competitive position in terms of economic development, those issues are legitimate issues to discuss. But it should be separate from the budget."

The response to McKay is more cautious in some segments of the business community.

Rick McAllister of the Florida Retail Federation, who heard McKay's talk, said the real test is what happens when McKay starts proposing which exemptions should be closed.

"Until we see the full plan, we really couldn't comment on it," McAllister said.

The Florida Chamber of Commerce sounded more skeptical.

"We generally don't like to add revenue. We like to cut expenses," said chamber spokeswoman Jessica Cary. "We definitely don't want to repeal any exemption that could adversely affect tourism."

McKay has repeatedly emphasized that he does not want to raise taxes. He calls it a "revenue neutral" overhaul of the tax system. But even if circumstances might be on McKay's side, history is not.

The 1987 Legislature voted to tax services but repealed it after ferocious criticism from business interests.

Instead of taxing services, the Legislature voted to raise the sales tax from 5 to 6 percent, increasing the state's reliance on visitors and goods they buy.

In pushing tax reform, McKay must confront a distracted Legislature: 2002 is a year when boundaries of lawmakers' districts must be realigned, and all 160 House and Senate seats are up for election. It is not an ideal time to be talking about taxes.

House Speaker Tom Feeney, R-Oviedo, says he welcomes serious talk of tax reform, but warned the task is not an easy one.

"Tax reform would take us a long time," Feeney said. A fiscal conservative who has advocated larger tax cuts than McKay, Feeney cited a recent study that showed Florida's tax system is less cyclical than other states'.

Even with some GOP opposition, though, McKay's tax reform mantra doesn't seem so esoteric anymore because the state is faced with two tough choices: Cut services or raise taxes.

Florida's tax code is almost totally dependent on sales of goods, with most services tax-free. When people buy fewer goods, Florida's government has less money. With a Constitution that bans both a state income tax and deficit spending, the state is highly vulnerable to an economic downturn.

"McKay is energized about it," says Senate Majority Leader Jim King, R-Jacksonville, who was with the retailers. "He feels, in his heart of hearts, that we need to be prepared for a crisis and not just react to it. . . . I think everybody agreed we had a problem, and they were willing to talk about it."

In the end, talk may be as far as McKay's idea goes. But he's not ready to concede. "I might not be successful, but I'm going to give it one hell of a try," McKay said recently. "And I expect to be successful."

-- Times staff writer Alisa Ulferts and researcher Deirdre Morrow contributed to this report.

Back to State news

Contact the Times | Privacy Policy
Standard of Accuracy | Terms, Conditions & Copyright

Special Links

Lucy Morgan

From the Times state desk