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Senate President John McKay's tax reform plan would expand the tax base and rely not on state tourism but on investment and pride of its citizens.
© St. Petersburg Times
published December 20, 2001
Whether Senate President John McKay succeeds or fails in reforming Florida's tax system, the proposal he put forth Tuesday has already performed one important public service -- that of illuminating the vast vacuum of leadership and vision he is trying to fill in Tallahassee. It took only hours.
Gov. Jeb Bush, the great liquidator whose idea of tax reform is spelled r-e-p-e-a-l, worried about putting Florida at a "competitive disadvantage." House Speaker Tom Feeney promised a fair hearing but in the next breath fretted about letting tourists off the hook and exposing legislators to "political fallout." Associated Industries, Florida's shadow government, protested with unconscious irony that the existing tax system "has served us well." True to form, lobbyists for the accounting profession and the National Federation of Independent Business rushed to the defense of their tax exemptions.
There was a weird unreality to all this nattering negativism, in that it totally ignored the crippling competitive disadvantages under which Florida already labors: 49th among the states in per-capita spending on education, 44th in percent of personal income spent on public schools, 49th in high-school graduation rates. This is why Florida's median household income has slipped from 33rd to 40th, why so many banking headquarters have fled the state and why Florida is starving for new industry.
That is Florida's fate so long as we continue to rely on a 1940s-era tax base that now applies to barely half of the economy and, as McKay points out, exaggerates each economic fluctuation. Moreover, it gets worse; by phasing out the estate tax credit for states and by refusing to enable states to collect sales taxes on mail order and internet merchandise, the Congress has worsened Florida's long-term deficit. McKay estimates that additional loss at $4-billion a year by 2006.
Must the solution depend on a constitutional amendment, as McKay proposes?
Ideally, it would not. On its own, the Legislature could repeal exemptions and lower the sales tax rate -- from 6 cents to 4 -- to precisely the same effect.
But the Florida Constitution has long since lost its purity on tax policy. Even as McKay strives to expand the tax base, legislators fronting for special interests are proposing to make it similarly difficult to repeal any tax exemption. The Constitution already requires a three-fifths vote to raise the corporate profits tax rate. Once in effect, McKay's plan would require a three-fifths vote in each house to grant a new exemption or to raise the tax rate above 4 percent. Much as one might wish for that not to be necessary, it probably is, if only to reassure skeptics on both sides.
McKay's choice of a constitutional amendment as his reform vehicle also offers political cover to reluctant legislators, who could rationalize that they are merely checking off to the voter. And of course it gives Bush a free pass too; governors do not sign or veto constitutional amendments.
McKay's amendment would guarantee that certain necessities -- groceries, residential rent, health care services, prescription drugs and basic residential telephone service -- remain exempt from the sales tax. (Household electric, gas and water services are just as essential, and should be protected as well.) By July 1, 2004, all other exemptions would be repealed except for those the Legislature chose to reenact. Concurrently, the rate of tax would be reduced by a third, to 4 cents on the dollar.
While the result would be revenue-neutral at the outset, the annual yield would grow at a faster rate than Florida can expect from a tax base that is presently limited to selected merchandise and excludes virtually all services. McKay's plan differs in several important ways from the services tax debacle of 1987. That one wasn't revenue-neutral, and it was hatched in the worst of all possible ways: too quickly and in secret. The pizza and beer party at a lobbyist's town house, where the 1987 bill was drafted, became an enduring metaphor for bad legislation in Tallahassee. Even so, it was a fairer and more sufficient tax base than before or after. On repealing the services tax before it went into effect, the Legislature raised the rate on merchandise from 5 cents to 6. That cost the average Florida family $74 a year. Spreading the base now, McKay calculates, would save them more.
More important, it would restore Florida's self-respect. A great society is not built on the pocketbooks of tourists, but rather upon the investment, pride and mutual responsibility of its own citizens. It was upon that immutable truth that this newspaper endorsed the tax reform in 1987, even though advertising would have been taxed, and that is why we support McKay's objectives now.
He needs your help, too.