Florida lawmakers on the House Ways & Means Committee have proposed almost $1 billion in additional tax cuts, despite gaps in critical services and a cumulative budget shortfall of $3.2 billion by the Fiscal Year (FY) 2019-20. The tax package would:
- Cut taxes for businesses by $513 million by reducing the sales tax rate on commercial leases (business rent tax) from 6 percent to 4.5 percent for two years, then maintain a permanent rate reduction to 5.5 percent thereafter. After two years, permanent revenues loss would total $153 million per year.
- Cut corporate income taxes by $48 million through multiple tax credit increases for the Brownfield Development Program, the Research and Development Tax Credit Program and Community Contribution Tax Credit Program.
- Cut sales taxes by a total of $144 million through multiple sales tax holidays for back-to-school supplies, veterans, hurricane supplies, animal health products and agriculture-related items.
- Cut sales taxes by a total of $27 million through multiple sales tax exemptions for diapers and incontinence and feminine hygiene products, exemptions which would create permanent revenue losses of $65 million after the FY 2017-18.
Of the total recommended tax cuts:
- $678 million (70 percent) would be non-recurring after the FY 2017-18.
- $276 million (30 percent) would be permanent tax cuts resulting in annual revenue loss.
While the phrase “tax cut” may carry positive connotations, the House’s proposal would force painful cuts to core services that provide tangible and significant benefits to families. Currently, almost half of Florida households cannot afford to pay for basic costs of living – including food, health care, housing, child care and transportation – because they do not earn enough income to pay for these services, even with full-time jobs.
Why House lawmakers continue to rely on ineffective tax cut policies despite evidence that these policies are costly and counterproductive is unclear. The projected cumulative budget shortfall of $3.2 billion by the FY 2019-20 is a direct consequence of annual tax cut policies since 2010. (See our full report on tax cuts in Florida.) Cutting taxes further would drain billions in state revenues and put future budgets at greater risk. Research also shows that:
- Sales tax holidays are an ineffective way to help struggling families, and they provide more political benefits than policy benefits. The savings generated by a sales tax holiday are too temporary and limited to have a meaningful impact on financially struggling families.
- Sales tax holidays are poorly targeted. They are not limited to poor families and are available to wealthy families and nonresidents.
- Some retailers exploit sales tax holidays. One study found that several retailers in Florida adjusted their prices, capturing up to 20 percent of the tax savings intended for families.
- Sales tax breaks cost revenues, forcing painful cuts to other core services or increases to other taxes. This makes is harder for struggling families, especially since the current level of funding for core services is at a record low since the recession.
- Tax cuts for business do not automatically translate to jobs or business growth. Businesses, small and large, simply do not hire more worker because they have a few more dollars. They hire more workers when consumers are spending more on their goods and services.
There are more effective tax and budget policies to help struggling families, businesses and the state economy without undermining the state’s ability to adequately fund state services now or in the future. These include:
- Plugging existing loopholes in the state’s tax system that are draining billions in state revenues to better fund core services at the level of state needs.
- Making Florida’s tax system fairer by implementing a state-level Earned Income Tax Credit program. This would offset the unfair burden of sales taxes on low and middle-income families.
- Investing state revenues in quality and affordable health care and education services. This would provide needed services for families, reduce out-of-pocket expenses and increase the chances of finding and keeping good-paying jobs.
- Investing state revenues in affordable housing to ease the burden on the 36 percent of Florida households who pay more than 30 percent of their incomes for housing and the 18 percent who pay more than 50 percent. Doing so would provide families with more stability and free up income for investment in more job training, higher education or owning their own home.
- Investing in modernizing the state transportation system, which would reduce the cost of transportation for businesses and families, help Florida businesses and workers be more competitive and make Florida a more attractive place for businesses.
Sometimes well-intended tax cut policies hurt families and the economy instead of spurring growth. In the long-run, they bring real financial and economic hardship for families by undermining the state’s ability to provide basic public services for residents.
Florida lawmakers must create more effective budget and tax policies to balance current and future state needs. There are many effective, successful policy tools that lawmakers can adopt to lift families, businesses and the economy. Lawmakers truly concerned about creating equal opportunity and long-term success for all Floridians should examine a broad array of policy options and choose wisely.