Tax Swap Bills Re-emerge

By: Michael Peltier, The News Service of Florida Email
By: Michael Peltier, The News Service of Florida Email

Tallahassee, FL - ...Put on the backburner a couple years ago, the idea of swapping a sales tax increase for property tax cuts has emerged again in the Florida Legislature.

Bills filed in both chambers last week would boost the state sales tax by 2.5 cents to 8.5 percent, a 42 percent increase, while at the same time axing the state’s required property tax levy for education by more than $7 billion a year.

Floated originally when property taxes were flying through the roof, the renewed interest in the idea coincides with Gov. Rick Scott’s campaign promise to reduce property taxes 25 percent by ratcheting back on the state required local levy for schools.

“Everything we do should be about jobs,” said Rep. Fred Costello, R-Ormond Beach and co-sponsor of the House version (HB 995). “One of the things we can do to attract business is to lower their fixed costs.”

Costello is teaming up with fellow freshman Rep. Richard Corcoran, R-New Port Richey, who is in line to become House speaker in 2016, to sponsor the bill in the House. An identical measure (SB 1406) has been filed in the Senate by Sen. Ellyn Bogdanoff, R-Fort Lauderdale, chairwoman of the Senate Finance and Tax Committee.

Costello, the mayor of Ormond Beach from 2002 until his election to the House in 2010, said shifting the tax burden to consumers would result in a fairer system in which tourists would help pick up a quarter of the tab.

The identical measures call for eliminating the required local effort after allowing the increased sales tax to run for a period of months to build up a reserve. The property tax requirement would be dropped in November 2012. The increased sales tax would start next January under the bill.

The formulas currently used for determining required local effort would remain, but future increases or decreases required by such formulas would be generated from the 2.5 cent sales tax increase, rather than from the adjustment of property tax millage.

“The structure is already in place to distribute the money,” Costello said. “The only change is where the revenue comes from.”

The idea is not new. In 2007, then-House Speaker Marco Rubio called for an increase in the sales tax to offset an elimination of primary residence property taxes, which were skyrocketing in 2006 as Florida rode the housing bubble up. Bogdanoff, then a House member, was an ardent supporter. The idea was also backed at the time by Grover Norquist, president of Americans for Tax Reform, who said it amounted to a net tax cut for Floridians.

Florida TaxWatch gave the proposal mixed reviews at that time.

The group said in 2007 that increasing the sale tax would leave residents with less money, and could lead to higher unemployment.

But it also said that year that “nearly all individuals living in homesteaded property will benefit from a property tax/sales tax swap. Generally, individuals with high wages, who recently purchased a home, will receive the greatest overall benefit.”

Another downside, though, TaxWatch pointed out then was that Floridians living in rental property, about 30 percent of the state’s total population, would not fare well under the swap.

“These citizens will realize little or no benefit from the replacement of property taxes, at least in the short-term, but will be obligated to pay more sales and use taxes,” TaxWatch concluded.

The idea was mothballed after cities and counties raised concerns over reducing local revenues at a time when property values had begun to fall.

In 2008, there was a move to get a slightly different tax swap on the statewide ballot, with a proposal to remove all school district property taxes and then replace the revenue in other ways, with a possible sales tax increase being one of the options. The effort was backed by Realtors, who were worried about sagging home sales. Fearing a loss of dedicated school funding, education interests fought it, and it was eventually knocked off the ballot in the courts.

Gov. Rick Scott has proposed doing away with the required local effort but has not advocated for any sales tax replacement. The governor was travelling Tuesday and could not be reached for comment. Neither bill has yet been referred to committees.


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