Behind the Numbers (Part 1): Florida's Regressive Tax System is in Need of Reform

Introduction

Each year, during the regular legislative session, state lawmakers pass an omnibus tax bill — commonly known as the Legislature’s “tax package” — that offers an opportunity to make temporary or permanent changes to the state’s tax code.^[1] This year’s tax package, House Bill (HB) 7073, would cost $827 million in one-time (or non-recurring) tax changes, including costs incurred (about $405 million) after FY 2024-25, plus $87 million in recurring expenses.

In this first installation of “Behind the Numbers: What Floridians Should Know About the State Tax System in FY 2024-25,” Florida Policy Institute (FPI) provides an overview of the state’s current tax structure. Part 2 summarizes missed opportunities in HB 7073 that would have made the tax code fairer, and Part 3 recaps nine key provisions in the tax package.

Tax Revenue Supports Key Public Services

While tax codes are complex, there are three widely used and accepted tax bases that states tap into for general revenue: income, wealth, and sales. Alongside laws that govern the tax code,^[2] consumer and business (or firm) behavior also impact tax collections. In turn, state and local governments use general tax revenue to:

Maintain highways and roads;
Support public safety and a justice system;
Ensure individuals have access to health care;
Offer safety net programs like unemployment insurance, initiatives to reduce food insecurity, and universal pre-K;
Create job training opportunities;
Guarantee access to high-quality public education, including K-12 schools, post-secondary colleges and universities, and vocational training programs;
Preserve public parks, the environment, and clean water infrastructure; and
Subsidize public libraries and community centers.

Conclusively, tax decisions made by lawmakers can either help local governments provide these and other high-quality public services, or limit their ability to do so.

Florida's Tax Structure Relies Heavily on Sales Tax Revenue

Historically, Florida’s tax decisions — and the state’s current tax code — limit revenue sources to sales (or consumption) above every other option. According to revenue projections for fiscal year (FY) 2023-2024,^[3] sales taxes account for 76 percent of all general revenue collected in the Sunshine State. In terms of who pays general sales taxes,^[4] for every $1 of sales tax revenue, the state collects 67 cents from Florida households, 19 cents from businesses, and 14 cents from tourists. Although Florida’s general sales tax offers a relatively stable source of revenue, the tax also overburdens households on the lower-end of the income spectrum, which is a characteristic of sales taxes and regressive tax structures. According to the Institute on Taxation and Economic Policy (ITEP), Florida’s tax code is the most regressive in the nation.

Although Florida’s general sales tax offers a relatively stable source of revenue, the tax also overburdens households on the lower-end of the income spectrum, which is a characteristic of sales taxes and regressive tax structures

When it comes to most progressive tax codes in the country, ITEP notes, states rely more heavily on income and wealth taxes instead of sales taxes. Additionally, states with progressive tax codes offer refundable credits targeted to households with low to moderate income, such as state Earned Income Tax Credits (EITCs), Child Tax Credits (CTCs), and “circuit breaker” programs to offset property taxes.

Since Florida’s constitution prohibits personal income taxes, options to offset Florida’s regressive tax code are limited to: closing corporate income tax (CIT) loopholes; enacting targeted tax credits (and other expenditures); and implementing circuit breakers.

Notes

^[1] While the omnibus tax package contains temporary and permanent tax changes for the upcoming fiscal year(s), policymakers may also submit standalone bills that make changes to specific tax issues, which could become part of the final tax package.

^[2]In Florida, rules around the state tax code can be found in Article VII of the Florida Constitution and Title XIV of Florida Statutes.

^[3] For FY 2023-24 revenue projections see page 46 of “Fiscal Analysis in Brief: 2023 Legislative Session.”

^[4] For a breakdown of contributions to General Revenue from Sales Tax collections, by source, see p. 40 of the “State of Florida: Long-Range Financial Outlook for Fiscal Years 2024-25 through 2026-27.”