December 22, 2021

Tax Relief Must Be Targeted to Those Who Need it Most

This post was last updated on December 8, 2021. As new policies are announced, FPI will update this page.

As Florida’s response to COVID-19 takes front and center, concern grows for low-income families who struggle to take precautions against the spread of the virus. Although Congress has passed the Families First Coronavirus Response Act to address, at least in part,  the public health crisis and economic fallout from COVID-19, many barriers continue to keep struggling families from accessing the assistance they need during the pandemic. As Florida initiates policies implementing the Act and addressing other barriers to the safety net, FPI will update this form. When available, hyperlinks are provided to agency documents or statements that provide greater detail  about the new policy.

On March 22, 2020, FPI and 44 other organizations sent a letter to Governor DeSantis, leadership in the Legislature and agency heads to urge action on 47 specific policy changes to reduce unnecessary barriers for Florida’s safety net programs in response to the COVID-19 pandemic. See the letter here.

Governor Ron DeSantis is once again proposing a series of sales tax holidays. Specifically, for FY 2022-23, the governor wants legislators to approve temporary tax exemptions on disaster preparedness items, back-to-school supplies, and a repeat of the current fiscal year’s “Freedom Week” exemptions on purchases for certain recreational activities. Since the total cost of the previous round of similar sales tax holidays was around $135 million, these repeat holidays will likely carry a comparable price tag. Now, unlike his past proposal, the governor’s FY 2022-23 recommendation includes an additional holiday, the “Florida Motor Fuel Tax Relief Act of 2022.” According to the governor’s recommended budget, Florida would exempt fuel taxes statewide from July 1 through November 30, 2022, if legislators vote to pass this holiday.

The  temporary gas tax exemption would cost $1.12 billion and be paid for using funds from the federal American Rescue Plan Act. Unfortunately, as both the Institute on Taxation and Economic Policy and Florida Policy Institute note, these holidays are temporary band-aids that do little to fix the deep-rooted inequities in Florida’s tax code. With this in mind, this blog explains why policymakers should divert their attention away from sales tax holidays and look instead to establishing the Working Floridians Tax Rebate (WFTR).

Sales Tax Holidays Do Nothing to Reform One of the Most ‘Upside-Down’ Tax Codes in the Nation

Throughout 2020, Floridians struggled to pay for food, health care, and housing. The hardship caused by COVID-19 hit people who are paid low wages the hardest. In addition to being more likely to lose jobs and income due to COVID-19, these Floridians were also at a higher risk of infection, as many were employed as essential frontline workers. Today, the same individuals and families continue to face food, housing, and employment insecurity. Furthermore, Florida’s upside-down tax code is an additional strain on individuals and families already struggling to meet their basic needs.

Research shows that Florida’s tax code plays an active role in exacerbating race, ethnic, and class disparities. On average, across the Sunshine State, Black and Latina/o households face the highest effective tax rates (i.e., the percentage of a person’s taxable income that individuals pay in taxes). Black households use an average of 6.2 percent of their income to pay state and local taxes, while Latina/o households use 5.6 percent. In comparison, white households have an effective tax rate of 5.3 percent. Overall, these disproportionately high effective tax rates limit income and wealth growth among Black and Latina/o families.

Additionally, Florida has the third most upside-down tax system in the nation — i.e., a system wherein a person’s effective tax rate decreases as income increases. In turn, Florida’s tax system benefits wealthy families while ensuring that those of modest means contribute a greater share of their income to finance public services. Ultimately, families of all races and ethnicities earning under $86,800 receive just 34.4 percent of statewide income but pay 53.2 percent of statewide taxes. This imbalance in Florida’s tax code suppresses the income of a diverse group of people paid low and moderate wages while boosting the state’s more affluent residents.

Research shows that Florida’s tax code plays an active role in exacerbating race, ethnic, and class disparities.


While Floridians who are struggling to put food on the table do need relief from the state’s upside-down tax code, research shows that sales tax holidays are not the answer. Such temporary tax exemptions are not free, nor do they lead to savings. Policymakers are required by law to keep a balanced state budget, which means they have to make up any forgone revenue through spending cuts or tax increases.  While proponents of these holidays claim these periods give people a break from taxes, a three- to 12-day sales tax holiday does nothing to provide long-term relief to families who need it the most. In the long run, sales tax holidays leave an upside-down tax system unchanged, and the benefits of these holidays for working families are minimal.

Sales Tax Holidays Are Ineffective in Providing Tax Relief and Boosting the Economy

Sales tax holidays offer seemingly no significant retail boost. Supporters of these exemption periods tend to argue that sales tax holidays promote economic growth; however, this has not been demonstrated. Researchers have found that sales tax holidays encourage people to shift the timing of their planned purchases to fall within the exemption period instead of making additional purchases.

Unscrupulous retailers may also exploit sales tax holidays by increasing their prices or watering down promotions to take advantage of more people shopping during these periods. In other words, retailers may increase prices during the sales tax holiday to capture much of the savings. A study of the 2001 Florida sales tax holiday period found that retailers absorbed up to 20 percent of the tax savings consumers thought they were getting by increasing prices. All of this raises serious questions about how much consumers benefit from these holidays. Also, thinking about Governor DeSantis’ “Florida Motor Fuel Tax Relief Act of 2022,” which will take place during the Summer 2022 season, many of the benefits may go to out-of-state tourists or visitors.

Sales tax holidays offer seemingly no significant retail boost.


Lastly, sales tax holidays create administrative difficulties for state and local governments and retailers who must collect the tax. Retailers, particularly newer or smaller businesses, can easily be overwhelmed trying to comply with the various sales tax holiday rules.

The Working Floridians Tax Rebate Would Put Money Back in the Pockets of Sunshine State Residents

The governor’s ask for temporary tax exemptions on disaster preparedness items, back-to-school supplies, purchases on certain recreational activities, and gasoline would cost more than $1 billion. That is $1 billion that cannot be spent on anything else. Ultimately, Floridians will pay for these sales tax holidays even though four in five residents do not use them on a regular basis. Instead of using more than $1 billion to finance a new set of tax exemptions, policymakers could use the money to reform Florida’s upside-down tax system through the Working Floridians Tax Rebate (WFTR). 

Unlike sales tax holidays, the WFTR would directly benefit 2.1 million local families making low- to moderate-income by putting $1 billion back in their pockets, with an estimated average rebate of nearly $500.


To date, Senator Jones and Representative Robinson have filed bills (SB 234/HB 613) to create the WFTR program within Florida’s Department of Revenue. As written, the program is meant to provide relief on sales taxes, fuel taxes, property taxes, and other taxes and fees by giving Floridians a rebate set at 20 percent of their federal Earned Income Tax Credit (EITC). Unlike sales tax holidays, the WFTR would directly benefit 2.1 million local families making low- to moderate-income by putting $1 billion back in their pockets, with an estimated average rebate of nearly $500. Also, since EITC recipients spend a significant portion of their refunds locally, the WFTR program could generate approximately $862 million for the state economy as people purchase durable goods, repair their vehicles, or pay off bills and debt.

Conclusion

As a policy, state-level EITCs like the proposed WFTR program are popular among Floridians, with a recent FPI poll showing that close to 70 percent of Sunshine State voters support it. Unlike sales tax holidays, the WFTR program would be a major first step in reforming Florida’s tax code. Suppose, however, policymakers continue to choose band-aid solutions instead of structural changes. In that case, Floridians earning low- to moderate-income, who are disproportionately Black and Latina/o, will continue to shoulder more of the costs of roads, schools, and health care.

In this upcoming 2022 session, policymakers can seize the opportunity to invest more than $1 billion in Florida’s prosperity by enacting the WFTR instead of the gas and sales tax holidays. This measure is an important step in boosting income for individuals and families in Florida who, although they are working and contributing to the economy, still struggle to make ends meet. People could use the rebate for any number of day-to-day necessities, like purchasing groceries or helping pay rent; additionally, parents might use these much-needed dollars to buy clothing, books, and other necessities for their kids. The rebate is a targeted, ambitious, and affordable way to fix Florida’s upside-down tax code from the bottom up, foster equity, keep people working, and help local communities and children thrive. It is clear from the experience of other states who enacted similar measures that this type of rebate can help forge a better path forward.

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