Editor’s Note: Although Amendment Five was, thankfully, removed from Florida’s November ballot, we leave this article. Some demagogue will certainly re-introduce it in the near future. Stay vigilant, Florida. It’s your money they want to spend for you!
FAQ’s on the Amendment Five “Tax Swap”
By Jack Hebert, AAF Fourth District Lobbyist – May, 2008
As a Florida voter you will be called on to make many important decisions on November 4, 2008, but none as far-reaching – and perhaps as controversial – as the proposal by Florida’s Taxation and Budget Reform Committee to make radical changes in Florida’s tax system. Though some would have you believe it is actually only long-overdue property tax relief, it is at best a tax swap that has the potential to morph into the largest tax increase in Florida’s history.
To help you make an informed decision, here are some answers to the most popular questions about Amendment Five.
So what exactly is this TBRC thing? The Florida Taxation and Budget Reform Commission is a constitutionally chartered entity created and approved by Florida’s voters in 1988, which met for the first time in 1990. It is comprised of 25 members appointed by the Governor, Speaker of the House and Senate President and charged with reviewing the funding of Florida state government and recommending changes to improve our taxation and budgeting processes. Changes adopted by voters in 1998 called for the TBRC to begin deliberations in 2007 and established meetings every 20 years thereafter. The TBRC has the power to send proposed constitutional amendments directly to the ballot for voter consideration. One of the members, former state senate president John McKay, was the driving force behind the Amendment Five proposal.
But we just passed Amendment One. Why this now? Property taxes continue to be high on the mind of Florida’s voters – second only to property insurance rates. The Legislature, with the support of Gov. Crist, created and pushed for passage of Amendment One in the spring of 2008. Among other things, its biggest selling point was that it effectively doubles the homestead exemption. Nothing in this new amendment changes any of that. Many Floridians consider Amendment One a positive start – but just the beginning. Through a series of public hearings held across the state over the last year to discuss taxation issues the TBRC heard an overwhelming common complaint from the pubic: skyrocketing property tax rates.
What exactly will the proposed Amendment Five do if passed? Amendment Five proposes to eliminate the current required local effort (RLE) portion of school property taxes which comprises anywhere from 25 to 35% of your total property tax bill. The percentage varies by county. The Legislature is then required to replace the lost tax revenue, projected to be somewhere around $9.3 billion in 2010, by exercising one or more of four options:
1) Raise the sales tax by up to one cent;
2) Consider reductions in state spending or revenues resulting from economic growth;
3) Repeal current state sales tax exemptions, or;
4) Generate other revenues identified or created by the legislature.
The one-cent sales tax increase will raise about $4.5-billion, leaving another $4+ billion to be “found.”
Some of this sounds familiar. Wasn’t this tried before? Yes and no. The property tax reduction aspect is a new twist, but the review and elimination of sales tax exemptions is not. During his tenure as a state senator and later as senate president, John McKay was the leading proponent of an idea to begin a systematic review and/or elimination of sales tax exclusions and exemptions with the goal of providing a more stable, broad-based tax. McKay managed to have the Legislature advance a proposal in 2002 only to see it later thrown off the ballot by the Supreme Court. After leaving office McKay then led a statewide signature gathering campaign ultimately winning support for another similar idea, only to run into Supreme Court problems again. Unfazed, he retooled again in 2005 but was unable to gather enough signatures to make it to the ballot.
If the idea is to cut my property taxes, what’s so wrong with that? Nothing at all. Reducing property taxes in and of itself is certainly a noble – and likely well-received – gesture. Many Floridians are finding it increasingly difficult to keep up with the demands of rising property taxes coupled with skyrocketing insurance premiums, particularly in a sagging economy. But the hidden danger of this particular proposal is the “swap” component. It’s not true tax relief. Government will simply leave some money in one of your pockets, only to take it back out of another. It’s very questionable if there will be any net-net savings.
But still I’ll be saving a boatload of taxes, right? No, not in the long run. The Legislature will need to find a way to “replace” the property tax savings you’ll first enjoy. There is nothing in the proposal that requires government to spend less, it merely creates the need for a shift in funding. The need doesn’t change. In addition to loosing a portion of a federal income tax deduction, you’ll surely face paying more sales tax on everything else you buy. There’s also a very strong chance you’ll begin paying sales tax on many items and services that are currently exempt. And, if you either work in, or consume the goods or services of, one of those newly taxed industries, there could be a brand-new 7% expense you will have to figure out how to deal with.
Why are some calling it nothing more than a “tax swap?” Simple, it lowers your taxes in one place, only to hike them in another. The proponents will surely continue to try to sell it as “property tax relief” – but in reality, you will save little, if anything. In fact some experts believe it will cost Floridians more in the long run – especially those in lower income brackets. Sales taxes are generally viewed as regressive, meaning that the poor are forced to pay a disproportionally larger share of their income in these kinds of taxes.
I thought tourists paid a lot of our sales taxes. Why not put the burden on them? True, in a given year as much as 20 to 25% of our sales tax is actually paid for by tourists, that could help reduce your total tax burden. But keep in mind, Florida already has one of the highest sales tax rates in the country. Increasing it even more will not go completely unnoticed. With skyrocketing fuel costs already threatening, expecting tourists to pick up the additional burden is gambling with the state’s number one industry: Tourism.
Well, those exemptions could be more fair. I pay sales tax on my ticket to a Dolphin’s games, but not that guy up in the fancy sky box. What’s with that? Good point. Certainly some of the current 246 exemptions from sales tax appear less than fair on the surface. Nevertheless, even if you carefully review and then remove some of the more “frivolous” exemptions you’re only scratching the surface. We’re talking about filling a very, very big hole, something on the scale of over $4-billion. By comparison, the current exemption on skyboxes is worth only about $900,000, ostrich feed is only good for about $100,000, but charter fishing boat rentals would be good for about $64 million. Now, that gives you only about 1.5% of the $4-billion you need to raise. So you turn to the really “big” chunks you need to fill the gap, looking at some of the “extravagances” – like the four largest current exemptions:
1) Car trade-ins;
2) Government purchases;
3) Metered water, and/or;
4) Fuel purchased by public and private utilities.
However, these four together would only raise another $1.6 billion. Now you’re only about $2.35 billion short. What comes next? Funerals? Maybe school books and lunches? Or there are always guide dogs for the blind.
What’s so wrong about paying a little more sales tax – and maybe paying it on a few more things? Nothing. In fact many people will surely strike a smile from the substantial lump-sum tax savings on that first bill – even if it means they will have to make incrementally smaller, yet larger and more frequent payments, via increased sales and services taxes. It’s just like the appeal of a “simple-monthly-pay-as-you-go-payment-plan.” But that instant gratification becomes far less appealing when you consider the long-range implications of the swap. There is no free lunch. For example, all that dough you may save in property taxes is also part of a federal tax exemption you now enjoy – so plan on at least 18% of you newfound savings going to the IRS.
So what exactly is so bad about taxing services? Well, in the first place it has already been tried back in 1987– with disastrous results. Florida’s Legislature, with the support of then-Governor Bob Martinez, enacted a service tax that lasted exactly six months before it was later repealed. It was universally hated by the business community, was problematic and expensive to enforce, and had a stifling effect on our economy. Second, since the time Florida tried it, a majority of other states have likewise passed a services tax – only to later repeal it.
What will be the impact to advertising? In one word: disaster. An AAF-commissioned study by world-recognized economic consulting firm Global Insight predicted a virtual Sunshine State Tsunami: A 6% sales tax on advertising would trigger a reduction in total sales in Florida of $18.4-billion, ultimately resulting in 89,751 lost jobs.
So can’t we make a strong case for continued exemption? Maybe, maybe not. We certainly didn’t escape the services tax fiasco in 1987. Ask anybody who was around back then to tell you about it and it’s not pretty. Many national advertisers just stopped advertising in Florida, and the budget of those who stayed didn’t automatically just increase by 5%. Some agencies moved out of state just to stay competitive. Magazines had blank pages, and some television ads were actually blacked-out in Florida.
What do the experts say about all this? Unfortunately, the water’s pretty murky here. The TBRC hired economist Dr. Tony Villamil, someone already well versed in projecting revenue collections for the state, to study the issue. His models predicted troubling trends – raising costs and reducing demands, with the loss of as many as 55,000 jobs in the first year alone. Commissioner McKay quickly enlisted the counsel of another leading authority, Hank Fishkind, Ph.D., who argued a completely different position. His projections suggested that the property tax reduction would increase wealth, spurn economic growth and stimulate investment while saving the average household a net of $53 annually. Florida TaxWatch offered a more somber analysis, saying “the economic impact of replacing property taxes with sales taxes is at best debatable, at worst detrimental.”
When will all this go down? Amendment 5 will appear on the November 4, 2008 general election (Presidential) ballot for consideration by Florida voters. If more than 60% of those voting approve the amendment, it will take effect in 2010-11.
Who’s on board with this idea? At this point no one is quite sure – at least in terms of any organized groups. Obviously a lot of ill-informed voters might find it attractive believing it will reduce their property taxes – until they learn the back story. Presumably the real estate industry will be supportive, since real property is specifically carved out from the sales tax and some believe that the reduction might help restart the sagging home sales market. The Florida Realtors® were major funders of the campaign to sell Amendment One to the voters in the spring of 2008 and it is entirely possible they could step up again.
And what groups are going to fight it? The list is growing. In addition to the AAF and the AAAA, our other advertising cousins will be front and center including the Florida Outdoor Advertising Association, the Florida Association of Broadcasters, and the Printing Industry of Florida. Professional groups will likely include the CPA’s, architects, engineers, attorneys, and the like. It also seems fairly certain the business community will be opposing it; groups like the Florida Chamber, Associated Industries of Florida, NFIB and others. Plus, unlike in the past, it appears we may have a new partner for this fight: the education community. During the final TBRC deliberations the Florida School Boards Association came out in opposition, and we’re guessing others may follow including perhaps the community colleges and teachers’ unions.
Is there any way to stop it? Yes, but it won’t be easy. We’ve got to convince at least 40% of Florida voters that it’s a bad idea before they vote on November 4th. It will take a strong message – and a good amount of money.
What can I do? First and foremost, stay alert and watch for updates. Obviously the first step will to be to educate as many voters as possible as to real impact Amendment 5 would ultimately have on their lives. The Fourth District AAF will be working closely with the other interested parties in the coming weeks and months to conduct research and develop a common message for a campaign to counter the amendment. Now is the perfect time to reach out to your colleagues, friends and neighbors to begin an educational campaign.
Where can I find more info? The Fourth District AAF will be developing a special section of our website, posting news, updates and collateral materials as they become available. Be sure to check in at http://www.4aaf.com/ frequently for the very latest information.
Editor’s note: AAF – American Advertising Federation
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