January 24, 2024

State of the Budget (Part 1): Florida’s Revenue Outlook

The 2024 Florida legislative session commenced on January 9, and as mandated by the state constitution, policymakers will have to pass a balanced budget for the upcoming fiscal year (FY) 2024-25. 

To do so, policymakers will consider a number of factors, including the state's economic outlook and revenue projections, the governor’s budget and tax proposal,  and the cost of bills that are passed during the session. 

Beyond the dollars and cents involved in developing the state budget, it is important to note that a state budget is as much an accounting document as it is a statement on the Legislature’s values and policy priorities. Spending is not inherently “good” nor “bad”; instead, each appropriation represents a choice that is made about how, where, and why lawmakers invest shared resources. 

Similarly, choices about how to raise revenue are not merely about the dollars that will end up in state coffers. Florida’s budget is supported by revenue generated by the state and drawn down from the federal government. How revenue is generated, where it comes from, and how it is utilized also indicates the values and priorities of state leadership.

In this three-part series, "State of the Budget" FPI examines key fiscal and policy considerations for lawmakers as they convene for the 2024 legislative session. Part 1 looks at the outlook for state revenue sources; Part 2 examines the costs associated with key policy proposals; and in Part 3, FPI provides an overview of federal funds that Florida has opted out of.

Florida’s Regressive Tax Code and Possible Changes

Concerning general revenue, the Executive Office of the Governor expects Florida’s total tax collections to increase from $45.7 billion in FY 2023-2024 to $46.7 billion in FY 2024-25. The governor’s projections align with the state’s Long-Range Financial Outlook, which assumes revenue will increase to $47.4 billion in FY 2024-25. The latest projection from Florida’s Revenue Estimating Conference (REC) expects revenue to increase to $48 billion in FY 2024-25. The REC also adjusted its revenue expectations for FY 2023-24, which — in addition to the increase in FY 2024-25 — yields a two-year combined increase of $2.2 billion. Most of the revenue is set to come from sales tax collections.

The state relies heavily on its general sales tax to balance its budget. Moreover, the governor expects the state’s general sales tax to raise $1,569 per capita in FY 2024-2025. This surpasses the U.S. average and the average among Southern states. Florida’s dependence on sales taxes explains why the state has the most regressive tax code in the United States.

The governor’s tax package does not include changes that would mitigate Florida’s regressive tax code in the long run (see below for a discussion about sales tax holidays). Nevertheless, policymakers are thinking of ways to reduce the sales tax burden on workers and families paid low to moderate wages. For example, House Bill 1601/Senate Bill 1570 would create the Working Floridians Tax Rebate program to boost the federal Earned Income Tax Credit for recipients in the Sunshine State.

The state relies heavily on its general sales tax to balance its budget.

The governor’s tax proposal does include new tax expenditures — tax credits, deductions, refunds, and exemptions, collectively referred to as “silent spending” — to address property insurance and flood insurance premiums (which would cost about $150 million annually). Florida’s property insurance crisis persists and policymakers may follow the governor’s lead and propose different tax credits and incentives to further mitigate rising costs.

More Sales Tax Holidays?

Concerning Florida’s budget, sales taxes are the most important revenue source. Yet, as the Institute on Taxation and Economic Policy (ITEP) explains, sales taxes are inherently regressive because families with low- to moderate-income spend a greater share of their earnings (compared to wealthier families) on goods and services subject to the tax. Since the late-1990s, policymakers in Florida have enacted “sales tax holidays” to temporarily suspend the tax on purchases of clothing, school supplies, and other items. As ITEP and FPI note, while these temporary exemptions may seem to lessen the regressive impact of the sales tax, in actuality, their benefits are minimal. Sales tax holidays are not well targeted to families making low- to moderate-income, burdensome for tax agencies and small businesses to administer, and can significantly affect state and local revenue.

Despite their drawbacks, the governor’s proposal includes two 14-day back-to-school holidays, two 14-day disaster preparedness holidays, a week-long tool time holiday, and a three-month “Freedom Summer” holiday. Combined, these sales tax holidays will cost between $471 million and $556 million in FY 2024-25.

During the 2023 regular session, policymakers followed the governor’s lead and passed all of the aforementioned sales tax holidays. Among the governor’s new sales tax holiday recommendations, Freedom Summer is the most expensive. However, the majority of the savings generated from Freedom Summer will primarily favor individuals who already have the means to afford the diverse range of activities, supplies, and events that are temporarily sales tax exempt. (See also: "'Freedom Summer' falls short. But this tax rebate would put $200 million in Floridians’ wallets.")

Downloadable Resources

There are no attachments currently.
No items found.