State Income Tax: Why It Won't Happen In Florida
Published: Jun 10, 2007
TALLAHASSEE - They are dirty words in Florida politics when you string them together: "income" and "tax."
Lawmakers return to the state capital Tuesday for a special legislative session to try to reverse a trend of soaring local property tax bills. In casting about for a solution to a crisis that has brought busloads of demonstrators to Tallahassee and saw lawmakers battle to a draw in the regular spring session, Florida continues to treat the personal income tax as heresy, able to poison the political career of anyone suggesting it.
Increase the state's 6-cent sales tax? That was an early solution, though it was ultimately discarded.
Mandate rolled-back revenue for cities and counties, and cap their tax collections going forward? That has been a component of several proposals and is likely to be implemented in some form.
Dramatically increase the homestead exemption, lowering taxable values and slashing local tax bills? It appears that's going to happen as well.
But tax Floridians' income? Since voters wrote a ban on such a practice into the state Constitution in 1924, that idea hasn't had serious consideration - despite the fact that it could lower the overall tax bill of low- to middle-income taxpayers.
Florida is one of just seven states without an income tax. To many economists, it is a valid strategy to balance a state's revenue collections - another leg of the solid footstool representing the blend of property tax, sales tax and income tax.
"It's really the most important foundation and component of a rational tax structure, and we're lacking it completely," said Bruce Nissen, director of research at the Center for Labor Research and Studies at Florida International University.
Don't expect that situation to change. Although Gov. Charlie Crist has said he hasn't "poured water" on any proposals, and House Speaker Marco Rubio said any and all ideas are on the table, the income tax never made it to the special session menu.
The subject moves many lawmakers to laughter. Some, such as state Sen. Steven Geller, don't even bother with a straight response. "If you're going to start discussing pornography, I'm going to get off the phone," Geller recently quipped to a reporter who uttered the "dirty words."
Lawmakers such as Sen. Mike Haridopolos, R-Indialantic, and Rep. Ellen Bogdanoff, R-Fort Lauderdale, say they like a sales-tax-based economy. Others, such as Rep. Trey Traviesa, R-Tampa, and former House Speaker Allan Bense, point out the lure of a low-tax state for people and businesses.
"It ain't broken," Haridopolos said of the Florida tax system. "I'm pretty antitax as it is. The last thing I want to do is give the government another shot at your wallet."
Martha Barnett, an influential Tallahassee lawyer and former president of the American Bar Association, made the last true effort to raise the issue as a member of the Taxation and Budget Reform Commission in 1991 and the state Constitution Revision Commission in 1997.
She now serves on the new tax and budget commission, which can place reforms on the statewide ballot in 2008. She said she won't bother bringing up the personal income tax again.
"A mystique grows up around particular issues, and people stop thinking about the merits of it and they go on the emotion of it," Barnett said.
How It Might Work
The 43 states that levy personal income taxes typically base them on the filer's adjusted gross income or taxable income on the federal tax form. The number of tax brackets and rates vary dramatically.
In Georgia, for example, the rate varies from 1 percent to 6 percent across six tax brackets, with many exemptions. Colorado levies a flat rate of 4.63 percent and offers no personal exemptions.
Let's assume Florida assesses a tiered income tax rate averaging 3 percent - 2 percent for lower and middle income brackets, 3 percent for higher incomes, and 4 percent for the top earners.
In that case, the head of a household with an average income of $55,000 - whittled to a taxable income of $40,000 with exemptions - paying 2 percent would owe $800 in income tax.
Here's where it gets interesting. State economists say an average 3 percent income tax would raise $9.4 billion.
Statewide, $30.4 billion will be collected in property taxes this year. Augmenting reduced property tax levies with income tax revenue would mean the state could trim property taxes 31 percent.
If the filer's property tax bill had been $3,000, it could be reduced to $2,070 - saving that person $930.
Despite paying a new income tax, the filer's overall tax bill would be $130 less.
One Who Dared
In 1998, the state Constitution Revision Commission asked Floridians, among other things, whether they wanted stronger gun laws, a new Fish and Wildlife Conservation Commission, and a restructured state Cabinet.
The commission didn't bother asking voters whether they wanted a personal income tax - but not for lack of effort on the part of Barnett.
Barnett, the Tallahassee lawyer specializing in governmental law and public policy, is one of the few people in a policy-making position to advocate for such a tax. Her proposals as a member of both the 1991 Taxation and Budget Reform Commission and the 1997 constitution panel would not have instituted such a tax but would have let the voters decide whether to lift the constitutional ban on an income tax so that a future Legislature might have another option in the state's revenue equation.
"I have long believed that any tax system needed to be diverse," she said recently. "If you're going to use taxpayer dollars to fund government, you need a stable source of funds - one that's not regressive, one that's responsive to changes in the economy. It's like having multiple options available to policy-makers in terms of how to fund government."
Barnett said she still thinks it's the right thing to do. She considers the state sales tax regressive - requiring a greater proportion of the income of the poor - and believes in the concept of taxing wealth.
But she's giving up on introducing it at this incarnation of the tax and budget commission, to which she has been appointed. The group meets roughly every 20 years to assess the state's tax and budget policy and propose changes.
"I think there's a general distaste for an income tax regardless of whether it's the federal or state," she said. "It's a tax people feel, kind of like the property tax. You see it taken out of your check, your W2s. People are very aware of it coming out of their income, so it's much more tangible than the sales tax, which is in drips, dribs and drabbles."
Defeated on the commission, Barnett continued her day job. That can't be said for others tarred with the pro-income-tax brush.
In 1988, incumbent Rep. Sam Bell, D-Ormond Beach, was unseated after an opponent painted him as supporting an income tax. He had been an ardent supporter of broadening the existing sales tax to be assessed on services.
"Clearly, the tax issue was the factor that finished me off," Bell said recently. "They took my quotes and made it sound as if I was the advocate of the income tax, which I never really was. There wasn't anything I could do about it."
Brad Coker of Mason-Dixon Polling & Research, which frequently takes Florida's pulse, said the issue is such a nonstarter his firm hasn't polled on it in decades - but he recalls opposition of more than 80 percent. In 1990, 79 percent of voters told Mason-Dixon they would be less likely to vote for a candidate who supported a 5 percent state income tax for education.
Thumbs Up, Thumbs Down
Connecticut was headed toward fiscal disaster, with blame falling to the usual suspects: Medicaid, schools, prisons.
In 1991, the state faced record deficits, and new Gov. Lowell Weicker saw only one way out - instituting a state income tax.
Over howls of tax protesters and some lawmakers, Weicker got the tax through the state Legislature. Under intense public pressure, the Legislature then did an about-face and repealed it, but Weicker vetoed that move.
Perhaps not coincidentally, Weicker had been elected as an independent and indicated he had no qualms with serving as a one-term chief executive - which he did.
Today, detractors point out that the 4.5 percent income tax rocketed Connecticut from one of the lowest-ranked states according to state and local tax burden - 32nd in 1990 - to eighth this year. But the tax has eliminated the cloud of deficits and provided adequate revenue, and Connecticut has maintained its perch as the nation's wealthiest state. There has been no serious effort to repeal the tax, although Democrats continue to attempt to make the tax easier on lower-income residents and heavier on the wealthy.
Eight years after Connecticut acted, Tennessee Gov. Don Sundquist began calling for an income tax to support education and health. The Republican governor allied with Democratic legislative leaders but ran into more formative opposition: rabid antitax protesters fueled by a pair of conservative talk-radio hosts.
In 2000, 2001 and 2002, demonstrators flocked to the state Capitol. In 2001, a shouting mob pounded on office doors and broke windows, including one in Sundquist's office.
Sundquist never got his income tax, and today, Tennesseans still enjoy one of the lowest state and local tax burdens in the nation. But consistent revenue shortfalls have led lawmakers to increase the state's sales tax.
Neither Weicker, now a national health care advocate, nor Sundquist, a Washington lobbyist, responded to requests for interviews for this article.
The Actual Plan
A state income tax has been "a taboo for as long as I can think," said Kurt Wenner, a senior analyst at Florida TaxWatch, a Tallahassee watchdog. "People just don't want it."
So what is on the table in Tallahassee?
On Friday, Senate President Ken Pruitt and House Speaker Rubio sent a letter to lawmakers indicating their negotiators have reached agreement on a structure for tax relief and reform. The letter suggests the plan would start with changes in state law, which the Legislature can accomplish:
�The law would require cities and counties to maintain property tax values at this year's levels, then make cutbacks based on a formula tied to past performance. Revenues would be capped going forward so that governments cannot grow faster than personal income and new construction. Jurisdictions whose taxes have grown the most per capita would have to make the deepest cuts.
�Local governments would be allowed to override the cap and cuts by an "extraordinary" vote.
�Every category of property taxpayers would benefit.
The plan also contains a constitutional amendment that would go to statewide voters, possibly in January, which is required because the homestead exemption is enshrined in the state Constitution. It would provide:
�A "super exemption" based on a percentage of value, replacing the current flat $25,000 exemption. Lawmakers propose exempting 75 percent of the first $200,000 of home value, and 15 percent for the next $300,000 of home value.
�Property owners who would benefit more from an existing "Save Our Homes" benefit would be grandfathered.
Under that scenario, a $100,000 home would be taxed at $25,000, while a $500,000 home would be taxed at $305,000.
Reporter Jerome R. Stockfisch can be reached at (850) 222-8382 or firstname.lastname@example.org.
1861: Congress passes the Revenue Act of 1861, imposing a tax on personal income. The act is later found unconstitutional.
1911: Wisconsin adopts the first state income tax.
1913: An amendment is ratified to allow federal income tax. Congress reinstates the tax.
1924: Attempting to lure Northerners to preboom Florida, voters place a ban on state income tax in the state Constitution.
1949: Florida lawmakers pass a state sales tax - 3 cents on the dollar.
1968: The sales tax is raised to 4 cents.
1982: The sales tax is raised to 5 cents.
1987: At the urging of Gov. Bob Martinez, lawmakers pass a bill expanding the sales tax to services such as haircuts and legal aid. Public revolt leads to an about-face, and the service tax is killed. The flip-flop is largely credited with Martinez's political demise.
1988: The sales tax is raised to 6 cents.
1991: The state Taxation and Budget Reform Commission votes to hear testimony on potential income tax. The commission declines to refer the issue to the 1992 ballot.
1998: The state Constitution Revision Commission refuses to place personal income tax on the statewide ballot.
2000-2007: A run-up in property values is accompanied by hefty increases in local property tax revenue. The public outcry leads to Tuesday's special session.