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Criticism pelts McKay tax reform plan

The Senate president wants to end many tax exemptions and lower the sales tax by constitutional amendment.

By STEVE BOUSQUET, Times Tallahassee Deputy Bureau Chief

© St. Petersburg Times, published December 18, 2001

The Senate president wants to end many tax exemptions and lower the sales tax by constitutional amendment.

TALLAHASSEE -- Senate President John McKay unveiled an ambitious plan Monday to change the state tax system, and drew immediate opposition from businesses and skepticism from House Speaker Tom Feeney.

McKay wants to place a constitutional amendment on the November 2002 ballot to lower the state sales tax from 6 to 4 percent and broaden the tax base by ending many tax exemptions cherished by businesses.

The Bradenton Republican offered an apocalyptic view of Florida's fiscal future, with a looming $4-billion budget deficit in the years ahead and the possibility of another sales tax increase.

"I have long believed this is necessary," McKay said. "However, the events of Sept. 11 clearly highlighted an overdependence on the tourism portion of our economy. . . . We need to act now."

Currently, for example, hair care products are taxed, but haircuts are not; laundry detergent is taxed, but dry cleaning is not; lawn mowers are taxed, but lawn care is not.

McKay's proposal will have the enthusiastic support of school boards, counties, cities and other groups that decry the state's tax structure as creaky and outdated. His handpicked economist, Henry Fishkind, has calculated that every Florida family would save $133 in the first year.

But the plan faces opposition from small business owners struggling through a recession, larger businesses unwilling to lose the tax breaks they enjoy, and re-election-minded state legislators fearful of being targeted by opponents as protax.

Those opponents were out in force Monday.

"Our members do not believe in tax increases or putting an additional burden on small businesses," said Steve Birtman, state director of the National Federation of Independent Business, which has 15,000 members in Florida. "We're talking a new tax. You can dress it up as much as you want."

"This is a new tax," said Lloyd "Buddy" Turman, a lobbyist for accountants, one of many professions now exempt from tax that likely would lose its exemption under McKay's proposal. "It's a new tax on consumers, and it's a new tax on business."

The big business lobby, Associated Industries of Florida, questioned whether McKay's proposal is "revenue neutral" as McKay claims. AIF said the current tax system "has served us well" and that it's wrong to "create a false sense of panic by using the Constitution to force lawmakers to take on the job."

McKay says the elimination of the federal inheritance tax and the rapid shift of retail sales from cash registers to the Web could cost the state billions of dollars in revenue over the next five years. Without meaningful tax reform, he says, it is only a matter of time before the sales tax rate would have to be pushed up again, from 6 to 7 percent. "We've got to act now," McKay said.

McKay and Feeney have a fundamental disagreement about the state's tax system. McKay sees Florida's reliance on tourist taxes as a disaster, but Feeney sees it as an asset.

"I like tourists," Feeney said. "One of the reasons I love tourists is that they help pay for things they don't use."

McKay also carries the burden of history.

Senate Majority Leader Jim King, R-Jacksonville, says McKay's plan invites comparisons to a 1987 battle over taxing services. That fiasco, and the way then-Gov. Bob Martinez handled it, is widely blamed for costing the last Republican governor his job.

"The hard part of selling it to the public is it is not the sales tax of 1987, the sales tax on services," King said of McKay's plan. "And that's a difficult thing to do, because most people still remember the debacle of that time frame."

To get a constitutional amendment to the ballot, McKay needs at least 24 of the 40 senators and at least 72 votes in the the 120-member House, where Republicans hold a 77-43 advantage.

"I don't know how much support he's going to find in the House. I haven't heard anybody there endorsing it," said Randy Holcombe, a Florida State University economist who opposes McKay's plan.

"I think what we have now is better than what McKay is proposing," said Holcombe, who works with the conservative James Madison Institute. "We have a tax system now that will keep revenues growing along with the state's economic growth."

Under McKay's proposal, voters will be asked to render a yes-or-no verdict on the basics of his proposal next November. Passage will set in motion a furious lobbyist feeding frenzy in the 2003 and 2004 sessions, when legislators must decide which exemptions are restored, to ensure that the new tax base is what McKay calls "revenue neutral."

McKay also wants to wipe out taxes on stocks and bonds, hospital outpatient services and liquor by the drink, and make it harder for the Legislature to raise taxes or create new exemptions.

Senate Republicans such as Jack Latvala of Palm Harbor hope to persuade the House to let the voters decide the question. "All we're saying is, give the public an opportunity to vote. That's a fairly Republican principle in years gone by," Latvala said.

Feeney, R-Oviedo, repeated his promise to give McKay's proposal "fair and responsible consideration," but said he would oppose any tax plan that did not create jobs or allow Florida companies to prosper.

Latvala is in charge of congressional redistricting in the Senate, and Feeney wants to run for Congress.

In a Legislature with a long history of back scratching and horse trading, it's expected that McKay will simply hold redistricting hostage until Feeney agrees to move McKay's tax plan forward. But neither Feeney nor McKay was talking that way Monday.

"This will survive on its own merits," McKay said.

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