"A Hard Place to Be Poor:" Is Florida Losing Its Sparkle?

Folks with an axe to grind sometimes assert that population growth in certain states (and declines in other states) can be explained by characteristics of state tax systems, and occasionally engage in slipshod efforts to quantify these impacts. This is an easy thing to do poorly, and a hard thing to do correctly: after all, if you want to measure the impact of a tax system on a state's attractiveness to potential residents, it's not enough to simply look at tax rates-- you also have to look at what the state is doing with its tax dollars. Anyone with a school-age child recognizes the importance of quality public schools in making your living decisions.

So, this is a pretty hard thing to measure. But sometimes you can, in fact, look at specific features of a state tax system and say pretty unequivocally that, in fact, this feature makes people less likely to move there.

And, according to the St. Petersburg Times, that's exactly what Florida's property tax system currently does. The "Save our Homes" tax break, which forces first-time homebuyers to pay much higher property taxes, other things equal, than long-time state residents must pay, represents a real barrier against young families seeking to buy their first home in Florida.

This doesn't mean that "Save our Homes" is responsible for the state's slow(er) population growth-- after all, even if it makes the state less attractive for new residents, it makes Florida more attractive for folks who are already there-- and the Times laudably refrains from blaming the property tax system directly for this result. But it's worth reflecting on this question: does Florida really want a tax system that falls most heavily on the young first-time homebuyers who can be the long-term bedrock of the state's population growth?
Because that's what they've got with "Save Our Homes", to say nothing of the state's high reliance on regressive sales taxes.

Check out the complete Census population data here.

St.Petersburg Times Ed Board: No on Property Tax Ballot Proposal

With the Florida public (or at least the small fraction of the Florida public that can be convinced to vote on a non-Presidential ballot) poised to pass judgment on a property tax cut proposal referred by the state legislature in less than a month, the St. Petersburg Times editorial board rings in the new year by letting us know where they stand on this proposal.

They're agin it:

This state and its residents are facing serious economic challenges in 2008, but the amendment on the Jan. 29 ballot is not the answer.

And their reasons for opposing it seem exactly right:

There are many good reasons to vote against the property tax amendment. It
provides little help to businesses and owners of second homes or investment properties who need the most relief. Instead of creating a fairer property tax system it adds to the unfairness by allowing Save Our Homes benefits to be taken to a new home. And even with its projected reduced savings, the amendment still would cut funding for education and local government exactly as their revenues will be dropping because of other tax reforms and the slumping economy.

Put another way, fairness and sustainability are two areas in which the Florida tax system could use some improvement-- and the January proposal would not help in either area.

The striking thing about the debate over Florida property tax reform so far has been the absence of any real concern about fairness. Some participants in this debate would probably take issue with this characterization, but these are the same folks who thinks that the central tax fairness question to be answered in the next month is "do I deserve a $240 tax cut?" And that having answered "hell yes," they've successfully addressed whatever tax fairness concerns might arise.

The broader tax fairness question that should be asked, and answered, over the next month, is "what's wrong with Florida's property tax system, and does the proposal to be voted on fix these problems?"

The folks at the St. Pete Times clearly get this. It remains to be seen whether Florida voters will.

Donald Trump On Board with Crist's Tax Plan

With a month and a half left before Florida voters pass judgment on the Florida legislature's proposed property tax cut in January, folks are choosing up sides. And New York gazillionaire Donald Trump is on the side of the tax cutters.

Turns out Trump is paying $1 million in property tax on one Florida house-- which sounds pretty shocking until you know that the house is worth $56 million.

Left unexamined by the article is whether a $1 million property tax bill is anything disproportionate for such a house. $1 million is about 1.8% of the value of Trump's home-- certainly on the high side by comparison to other states, but not outlandishly so. And, of course, by Florida standards, Trump is being treated exactly the same, for property tax purposes, as a fixed-income retiree with a tiny vacation shack miles away from the beach. In other words, if you think about the fairness of Trump's tax situation by comparison to that of other vacation homeowners in Florida, he's got nothing to complain about.

It's certainly true that broad classes of people have gotten screwed by the Florida property tax system, and vacation homeowners are definitely among them.

But one thing Trump might consider is that if Florida policymakers continue to enact unaffordable property tax cuts, pressure will build in the long run for a new source of state funding for needed public services: and the obvious choice for Florida would be a personal income tax. And while the vast majority of Floridians would be better off if the state traded in its property tax-sales tax mix for a personal income tax, Trump would be one of the relatively small number of wealthy folks who would be unambiguously worse off.

Tax Commission: Let's Tax Services. No, Really.

The Florida Taxation and Budget Reform Commission, which meets once a generation (true) to recommend structural changes to Florida's tax system, has come up with a good one: expanding the sales tax base to include more services.

This very sensible idea has an unfortunate history of inducing groans wherever it's brought up; just ask lawmakers right now in Maryland or Michigan.

But that doesn't mean it's a bad idea: it's not. It just means that implementing a sales tax on services would require taking unwarranted tax breaks away from very specific groups who would like to keep them, thank you very much, and who tend to have lobbyists on call 24-7 ready to defend these tax breaks. And that's a tall order.

Florida lawmakers probably know this better than anyone, since they were among the first (and only) states to pass (and quickly repeal) something approaching a comprehensive sales tax on services, back in the late 1980s. But at least one member of the commission who remembers those days, Martha Barnett, thinks the bitter experience from the last go-round should be used to help push through this always-good idea now. The problem last time, she thinks, was that lawmakers rushed the process:

"We tried to do too much too fast with too little information," she said.

Lawmakers in Maryland and Michigan would probably nod their heads in agreement on that one, as well.

It's easy, of course, for an unelected body such as the Commission to propose something as politically volatile as a services tax. And if lawmakers act on the Commission's recommendation, they can count on a lot of political opposition.

But it's still the right thing to do. Check out Fair Tax Florida's policy brief on taxing services for more information.

Rubio on User Fees

Today's excellent Daytona News-Journal editorial on the likely user fee explosion that would result from passing the legislature's January property tax ballot measure, which we've already commented on today, includes an interesting rationalization from House Speaker Marcio Rubio. Here's Rubio explaining why it would be OK if locals made up for unaffordable property tax cuts by hiking a variety of user fees:

The West Miami Republican told the South Florida Sun-Sentinel newspaper that such fees are fair. "Fees are clear; they're not hidden," he said. "If you don't like that city and county officials are raising them, you can vote them out of
office on Election Day."

But exactly the same thing can be said of local property taxes. And in fact, the transparency and accountability of property taxes is what makes so many advocates of local control very protective about this revenue source.

This isn't to say, of course, that Florida's property taxes are currently all that transparent--they're not. They're unfair and unpredictable, imposing unjustifiable tax penalties on first-time homebuyers and rewarding people for nothing more exceptional than staying in the same home for a long time. But these flaws can be remedied quite easily if lawmakers are willing to renounce the "Save Our Homes" tax break that makes it all go wrong.

Moreover, user fees are actually fairly sneaky, in the same way that the sales tax is sneaky: it nickel-and-dimes you in a way that makes it hard to gauge the overall annual impact on your pocket book. In other words, you can make a pretty good case that user fees are actually less transparent than the property taxes Rubio wants to get rid of.

Tax Cuts= User Fees?

The editorial board at the Daytona Beach News-Journal casts their vote on the January property tax referendum in today's edition:

The bottom line: The proposed ballot issue exacerbates problems caused by the escalating costs of providing basic services. Voting "no" in January is the right choice to avoid large increases in local government fees.

In other words, the folks at the News-Journal aren't buying the argument that local governments can afford the additional property tax cuts the January vote might force them to make.

This is speculative, of course, and the reaction will almost certainly from one locality to the next. But, given that locals have already been forced to pare back their property taxes this year, it's not hard to believe that stacking on even more cuts would force many local governments to make some unappetizing choices: cut services or replace the lost revenue somehow?

The News-Journal editorial cites anecdotal evidence that suggests a lot of governments are already finding there's no fat to trim off their budgetary bones:

Port Orange, DeLand, Ormond Beach, Daytona Beach and Edgewater are looking at a fire-services fee, to cover expenditures that traditionally have been paid with general property taxes. DeLand and Port Orange are also looking at charging for some medical rescue services.
These Volusia County cities are far from alone. Elsewhere, cities are considering new fees or increases for water, sewer use, stormwater drainage, garbage pickup, development impacts, building permits, burial plots, library use, park and pool use -- and more.

As the editorial points out, this should hardly be a surprise. Anyone who remembers the dual legacy of California's Proposition 13-- lousy schools and a sudden growth in creative local user fees--could have told you this is a plausible outcome whenever state lawmakers make it harder for locals to rely on property taxes.

Again, this is all hypothetical. Some locals will find room to cut; others will find that they'd rather look under the cushions for the proverbial loose change rather than imposing further damaging cuts on vital services. But the fundamental point the News-Journal makes is dead on: a shift towards user fees is a poorly-thought-out, downright sneaky way of paying for property tax cuts. So why enact them?

Violating the "Right to Travel?"

It's never easy to design an effective ballot proposal on tax issues. You've got to explain inherently complicated tax concepts in simple, easy-to-understand language, and you've got to do it in a way that doesn't misrepresent the proposal's actual impact.

In their effort to achieve these goals, the legislative architects of Florida's January 2008 ballot measure on property tax cuts may have forgotten a third important goal: don't violate the US Constitution.

As the Palm Beach Post describes it, the hallowed (since 1999, anyway) principle at issue here is "the right to travel:"

The "right to travel," established by a 1999 Supreme Court decision, gives Americans the right to move from one state to another without being treated less favorably than those who established a home earlier.

The January ballot measure falls afoul of this provision by treating current Florida homeowners much better than, say, someone who currently owns a home in Alabama. Under the legislature's latest plan, a Florida homeowner who is currently getting, say, a $50,000 reduction in his home's value from the "Save our Homes" assessed value cap would be allowed to transfer this tax break to a new (Florida) house when he moves. Someone moving from Alabama would get nothing, and would pay much higher property taxes on the very same home than would the Floridian.

Even if it wasn't unconstitutional, this would be patently unfair. It's hard to defend a tax break that's based not on your ability to pay but on your bona fides as a long-term resident. But now Florida lawmakers have to worry about whether their latest property tax bill violates the highest law in the land.

The fundamental miscalculation lawmakers are making here is that, faced with an unfair tax break that gives too much to some and not enough to others, they've decided the only way to fix it is to give more to everyone. If the US constitutional problem turns out to be legit, "everyone" just expanded to include folks who don't currently live in Florida.

When you're in a hole, the old saying goes, stop digging. Florida lawmakers are in a tax policy hole of their own making, and appear to think they can dig their way out. But a more sensible first step would be to repeal "Save our Homes" and enact property tax breaks targeted to those most in need.

Keeping an Unfair System Unfair

The Sun-Sentinel's Michael Mayo gives a dispiriting (but probably quite accurate) assessment of Florida's property tax mess in a Sunday column.

True tax reform, and an overall fair and reasonable tax system in Florida, have about as much likelihood of happening as Fidel Castro getting a ticker-tape parade down Calle Ocho.

Mayo's pessimistic assessment is driven by the revised ballot measure referred to voters by the state legislature last month. Since the passage of a property assessment cap known as "Save Our Homes" almost 15 years ago, Florida law has allowed owner-occupied homeowners a tax break that gives the biggest tax breaks to (a) people whose homes are worth the most and (b) people who have owned the same home for the longest time. Who pays for this tax break? In Mayo's words:

Everyone Else (businesses, landlords, recent and first-time buyers, snowbirds).

From a policy perspective, the obvious solution is to repeal "Save our Homes" and enact targeted property tax breaks that are actually geared toward the homeowners, renters and businesses who need it most.

The second most obvious solution is to take Florida out of the diminishing "no income tax" club, enacting a personal income tax to reduce the upwards pressure on state sales taxes and local property taxes.

Both approaches are sound-- but neither is obviously a political winner in the short run. In the spirit of our federal fiscal policies this decade, Florida lawmakers clearly believe that short-term realities require "no losers"-- that is, tax reform shouldn't make anyone worse off.

This is absurd, of course. When you have a group that's received wildly too-generous tax breaks (long-time homeowners) and groups that have been completely hosed (renters, businesses, first-time homebuyers), true reform needs to gore a few oxen. And Florida lawmakers have steadfastly refused to do so.

What's it gonna take to change this depressing trend? Mayo thinks it'll take "voters going against their self-interest and politicians actually leading." He's only half-right on this score-- while it would clearly require lawmakers to show a little backbone, any shift from regressive property and sales taxes towards a progressive income tax will almost certainly make a majority of Florida's voting age population better off. A better way of phrasing it is that voters would need to see through anti-tax rhetoric and recognize where their self-interest lies-- also no easy trick.

Handicapping the January Ballot Proposal

In the wake of the Florida legislature's latest property tax plan-- which voters will pass judgment on in January of 2008-- the handicapping has begun. Will the legislature's proposal garner enough support to pass the 60-percent threshold needed? The Palm Beach Post's Michael Bender gives an initial survey that suggests it's got a chance, both because special-interest money might get plowed into the effort, and because bills referred by the legislature have a pretty good track record with Florida voters. Bender also points out reasons why it may yet fall to pieces: it's quite possibly unconstitutional, and special-interest money may yet emerge to oppose it.

One interesting reason for the bill's possible passage is mostly implied, however: no one's ox gets gored, at least not obviously. And herein lies the true problem with the legislature's proposal.

One Republican lawmaker, Ellyn Bogdanoff, asks "What would you gain by voting against it?" And this seems initially to be a pretty sensible question. After all, in the short run, if this thing passes you're either better off or unaffected, in terms of your current property tax bill.

But the question (and the lawmaker's answer, "I don't know that we gain anything," demonstrates the legislature's biggest failing in this process-- its unwillingness to think about the long-term impact of its actions.

The long-run implications are very different from the short term, "no losers" view of this proposal. It's incontestably true that the legislature's latest brainstorm preserves some unwarranted tax breaks (by making the "Save our Homes" tax break portable), gives too-small tax breaks to some groups that deserve them (businesses) and entirely ignores other groups that deserve them (first-time homebuyers). In the long run, the well-founded complaints of these shortchanged groups will leave Florida's tax system just as unpopular, unfair and unbalanced as lawmakers found it last month. But nobody actually loses right now from this plan, which leads to Bogdanoff's question.

Truly forward-thinking lawmakers would ask whether this bill is the right approach for a sustainable, fair and (gasp!) popular tax system. An even marginally-forward-thinking legislature would ask whether the long-term impact of the plan would be better than doing nothing. But Florida's legislative leaders aren't asking even that. They're simply banking that by providing tax cuts for some and tax hikes for no one, they've come up with a solution a majority of Floridians can agree on. And that's a shame.

Mayor Files Suit to Prevent January Tax Vote

If one Broward County mayor has his way, the referendum scheduled for next January, in which Floridians will decide whether to create a new "super exemption" from homestead property taxes, will never see the light of day. The Miami Herald reports that Westin Mayor Eric Hersh has filed a suit with the State Supreme Court arguing that the proposed super exemption referendum is unconstitutional. The Herald describes three prongs in Hersh's legal argument:

• Misleads voters by failing to tell them that a vote for the amendment is a vote to phase out and ultimately replace Save Our Homes, which now caps taxable assessment increases on primary homes at 3 percent a year.
• Violates the constitutional requirement that a proposal with more than one change to the constitution be voted on only during a general election, not a special election.
• Interferes with the constitutional powers of local governments to increase property taxes because the Legislature allows local governments to make budget cuts in 2007 before the amendment would take effect.

The first two points, at least, are pretty common arguments. Many states have a "single subject" requirement for constitutional amendments, and courts routinely shoot down proposed ballot initiatives because the language is misleading or incomplete.

Whether any of these charges hold water will be up to the courts. But these are all legitimate questions to ask. And the larger question lurking behind it all is: is a vote of the people the best way to decide what's good property tax reform?

Environmental Cost of Property Tax Cuts?

In the wake of a June special session of the state legislature that imposed major property tax cuts on Florida local governments, the drumboat of endangered local government services continues. The Orlando Sentinel documents the potential impact of these cuts on efforts to preserve Florida's delicate ecosystem:

State property-tax changes could put a financial pinch on some of the area's biggest environmental efforts.The Lake County Water Authority has planned for years to start two projects aimed at cleaning up the Harris Chain of Lakes. A $15 million proposal would remove a delta of sand and organic materials from Lake Beauclair -- a massive mound of deposits caused by years of polluted water coming downstream from Lake Apopka.Another project would divert water from Apopka-Beauclair Canal and clean up pollutants before the water reaches Lake Beauclair and the rest of the Harris chain. That could cost more than $7 million to build and up to $1.2 million each year to operate. The Water Authority has saved millions to help pay for some of the work. But the agency still needs future funding for these and other proposals.

Does this mean these projects will be hamstrung, or even cancelled outright, as a result of the pending property tax cuts? It's clearly too soon to tell. But the folks who are making the planning decisions on these important projects are obviously nervous about the impact Florida property tax cuts could have on their ability to fund these services-- and this nervousness is affecting their decision-making process:

The financial uncertainty may impact how the Water Authority moves ahead with its huge projects."With us needing more and fearing a cut in property taxes, we're like most everybody else -- we don't know what will happen," said Water Authority board member Nancy Fullerton.

For Floridians who are desperate to understand whether the property tax proposal they'll vote on in January is going to be affordable or not, it's of the highest importance to know whether the Water Authority boards and their ilk are crying wolf, or whether the pending cuts would eviscerate important local efforts at environmental conservation. Neither the Sentinel's article, nor this blog post, can pretend to answer this question. But this uncertainty is a direct consequence of the way Florida lawmakers decided to cut taxes this year. If they'd cut state taxes, they could have simultaneously identified cuts on the spending side that would make these tax cuts affordable, and brought things into balance. But because they chose to cut local taxes, Florida lawmakers didn't have to worry about enacting these cuts at a level that would be affordable. They could enact big cuts, and let locals figure out how (if at all) they could pay for them.

When the state mandates local tax cuts, but doesn't provide the financial support needed to ensure that these cuts will be affordable, that's a recipe for fiscal uncertainty at the very least-- and, in the worst case, fiscal disaster.

Proposition 13 Redux?

Survivors of California's "Proposition 13" tax revolt know that good intentions can go bad pretty fast. In particular, the lesson Californians have learned is that when you force unaffordable local property tax cuts, locals usually can't just reduce their total revenues by the full amount of the cut. Some of the property tax cut will have to be made up through hikes in other taxes or fees. And the most likely outcome is that the revenue will be made up in a way that's less visible- instead of one big tax, a lot of little nickel-and-dime stuff.

There's evidence emerging already that this is exactly what's going on in Florida, as local governments deal with the state-mandated property tax cut passed in a June 2007 special session. Florida Today has the story:

Facing a property tax shortfall of $4.1 million, city leaders may start enacting a minor tax on residents for drinking water,taking showers and filling swimming pools.
After more than an hour of debate recently, the Melbourne City Council decided to pursue a new 10 percent utility tax on water sales.

This is nothing new in Florida, of course. Local government collections from utility taxes on electricity, water and other utilities are estimated at about $1 billion for fiscal year 2007. Even in Florida, that's some serious money.

The question is, how can this tax swap be justified on fairness grounds? Lawmakers have demonstrated an (arguably sensible) aversion to taxing what they consider "necessities" such as food and utilities. The city of Melbourne is about to take exactly the opposite step, taking a path that many other Florida municipalities have already followed.

Of course, a tax on water consumption will hit businesses too. But that was also true of the property taxes the city will no longer be able to collect this year as a result of the state's actions in June. So this can't really be justified as an effort to make businesses pay more-- not that any city council member in Melbourne would have said so anyway.

The truth is most likely that Melbourne is taxing water because it's the tool that is available to them. They're doing it because the alternative is painful cuts in the services the city provides to its constituents.

This may be smart politics, at least for state lawmakers. But it's dumb policy-- and it's a policy that will inevitably make Florida's tax system even more unfair.

WSJ Weighs In on Florida's Property Tax Debacle

As a state lawmaker, you know you've made the big time when the Wall Street Journal's editorial board singles your tax ideas out for attention. A June 30 WSJ editorial (sorry, no link for nonsubscribers) takes note of Florida's property tax situation:

Florida family incomes have risen by a healthy 37% since 2001, but average property tax bills have climbed by 83%. In some communities, such as Boynton Beach, average property tax bills have tripled in seven years. Politicians tell of town hall meetings where angry constituents announce they are literally being taxed out of their homes.

The Journal notes approvingly that lawmakers have voted to cut property taxes-- but sees a danger ahead:

The catch is that this must be approved by 60% of the voters in a January 2008 ballot referendum. And already the liberal interests that feast on local spending -- government employee unions, contractors and local politicians -- are predicting Armageddon for schools and city services if the tax cuts are enacted.
House Speaker Marco Rubio, who has led the charge for property tax relief, says local governments have already spent $24 million of taxpayer money to lobby against the initiative.
With many municipal budgets having doubled in size over the past eight years, many Floridians are unimpressed with these sudden exclamations of empty city wallets. Taxpayer groups point to numerous examples of flush spending by cities and counties in recent years, including $32 million for a new municipal golf course in Palm Beach -- a county that already has 160 courses.

So, the Journal's story is basically the same as Rubio's: local governments are crying wolf. They've made out like bandits over this decade, and are terrified that the fat times will end. But in the end (the Journal's narrative goes), they'll be able to trim the fat in a way that makes these tax cuts eminently unaffordable.

The missing link here, of course, is a sense of what's happening to state tax collections--and state aid to local governments. The narrative the other side is telling is that the state has enacted a raft of unaffordable tax cuts over the past decade, and has paid for them by cutting state aid to locals--which has inevitably meant that locals must hike their property taxes just to pay for basic services. Is the other side correct? Maybe-- I haven't seen a compelling statistical argument on this front, but that doesn't mean it's not out there. But the WSJ is following the Rubio party line by pretending that cuts in state aid aren't even part of the story.

Amidst Property Tax Debate, Legalized Gambling Inches Forward

For most of the past decade, advocates of legalized gambling have found a staunch opponent in Florida in Governor Jeb Bush. But with Bush out of office, new Governor Charlie Crist isn't taking quite as hard a line-- and the floodgates are slowly opening. As the Tampa Tribune documents, legislation passed in this year's session allows "more slot machines, bigger poker pots and longer hours of operation."

One of the principal architects of gambling's expansion in Florida is Rep. Jack Seiler, a Democrat from Wilton Manors, who successfully sponsored a bill to increase the number of slot machines allowed at parimutuel facilities from 1,500 to 2,000. Seiler's reasoning: it's gonna happen anyway, we might as well take advantage of it:

"Gambling is here in Florida," Seiler said. "It is not going away. And if it's going to be here, we might as well get some of the benefits."

This argument holds true up to a point: humans have always gambled, and probably always will, so the question is whether this baseline level of gambling will happen in an unregulated environment or a regulated one. But when gambling is expanded as a response to a fiscal crunch, the rationale subtly changes. Whether they realize it or not, Seiler and other gambling proponents are now counting on gamblers to help fund schools-- and have every reason to encourage them to keep on gambling. Tom Talley of the Florida Council on Problem Gambling says it better than I ever could:

"Once they get in these places, they just keep digging the needle in deeper...They increase the games, they increase the amount of betting."

Hoisted By Their Own Petard

In today's St. Petersburg Times, Steve Bousquet notes that Florida lawmakers seeking to push through big property tax cuts have made things harder for themselves with their recent (successful) effort to raise the hurdles for constitutional amendments.

Until the passage of a 2006 constitutional amendment by voters, it only took a simple majority of voters to change the constitution. A lot of people thought this was too easy, so the amendment vote was set up. And 57 percent of Florida voters thought it was a good idea.

Of course, the result of that vote is that if Florida lawmakers pass a bill expanding the $25,000 homestead exemption (which would have to be ratified by Florida voters), 57 percent of Florida voters would no longer be enough to ratify it.

Is this a good thing? Maybe. If you think of a constitution as being a form of "higher law," different from the everyday statutes lawmakers pass every day, then it makes some sense to have a higher standard for changing these higher laws. For anything important enough to be written into the state's constitution, this way of thinking goes, you better be able to get more than a bare majority of people to support it.

Of course, the flaw in this argument is that when the constitution gets used for things that are fairly mundane, like the level of the state's homestead exemption or (as Louisiana does) the income tax brackets, then your constitution is no longer composed entirely of things that can be described as "higher law." It's more like a shopping list than a bible.

But if a state constitution is a mix of fundamental rights and bookkeeping measures, you've either got to be too free and easy with the fundamental rights (as Florida legally was before 2006) or a bit harsh on the bookkeeping stuff (as Florida arguably is now). So, what Florida does now is not more obviously wrong than what they did two years ago.

The real answer, for what it's worth: get the basic stuff out of the constitution. Make your state's constitution truly "higher law" in the sense that it contains the really fundamentally important things and excludes the knick-knacks.

"Save Our Homes" and Seniors

In the otherwise controversial world of property tax reform, pretty much anybody can agree on one position: seniors should not be taxed on their homes. But as Martha Brannigan documents in the Miami Herald, a case can be made that Florida's "Save Our Homes" property tax cap is having just that effect. Here's Brannigan's lede:

After Kimrey Newlin retired two years ago, he and his wife moved closer to their grandkids, leaving the $1.2 million Key Biscayne house they had lived in for 27 years for a $545,000 home in the Falls... But the Newlins are paying for the move. Although the new place costs less than half the old one, their property taxes jumped to $9,000 from $6,400.

The reason for this seemingly illogical jump: the biggest single property tax relief measure used in Florida, the "Save Our Homes" cap on the growth of taxable property value, depends primarily on how long you've lived in your house. The people who get the most out of Save Our Homes are those who have lived in the same home for the longest amount of time. And the people who get the least are those who have most recently bought their homes.

When a tax break is so obviously based on a senseless principle, it will inevitably run afoul of more basic tax principles such as "stop taxing seniors out of their homes."

As Brannigan notes, Florida does offer targeted tax relief for senior homeowners-- the extra $25,000 homestead exemption for low-income seniors is a welcome, and well-targeted, break-- but it's clearly not enough for elderly homeowners like the Newlins.

As we've noted before, there's a better alternative: a property tax circuit breaker credit, which would allow Florida policymakers to identify exactly which senior homeowners (and, if they wished to, renters) should be receiving property tax cuts, and then impose strict limits on how high property taxes can go for these fixed-income seniors.

But don't hold your breath waiting for such a reform to emerge from the special session starting tomorrow...

More on the Inequities of "Save our Homes"

Most observers of Florida tax politics don't need any more anecdotal evidence to understand just how silly and unfair the "Save Our Homes" property tax break has become in the 10-plus years of its existence. But what the heck-- here's one more from the Miami Herald:

Ivette Rivas was thrilled when her 19-year-old daughter, Amber Díaz, who suffers from mild autism, received a scholarship from Florida International University, but first Rivas was in for an education on property taxes.
It came after the Rivas family moved from their large house in The Hammocks to a smaller one closer to the university .... Rivas sold her four-bedroom, 2,500-square-foot home and bought a three-bedroom, 1,900-square-foot home for the same amount: $400,000 .... By changing homes, the Rivas family lost the protection of Florida's Save Our Homes Amendment, which caps property-tax increases year-to-year. Her annual tax bill more than doubled, from $3,500 to $8,600.

This crazy result doesn't have to be entirely attributable to "Save Our Homes," of course-- different taxing districts have different property tax rates, which could explain some of the difference-- but this change must be primarily due to the tax cap, which limits annual growth in a home's taxable value to 3% until you move.

The lesson: repealing "Save Our Homes" has to be a first step in any effort to truly reform Florida property taxes. At the end of the day, the baseline against which property tax liability ought to be measured is what your home is actually worth-- and Save Our Homes makes this impossible in a way that is patently unfair.

More Florida Seniors Get $75,000 Property Tax Break

News continues to trickle in about Florida localities who are taking advantage of the opportunity, newly granted to them by a constitutional amendment approved by Florida voters last fall, of adding an extra $25,000 "homestead exemption" from property taxes for all over-65 homeowners. The town of Miami Lakes has approved the exemption, which means that if you're over 65 and live in Miami Lakes, the first $75,000 of your home's value is now exempt from tax.

(The math on this: there's a statewide $25,000 exemption; for almost 10 years, locals have been allowed to do an extra $25,000 exemption for low-income seniors only; and now, participating locals can add a third increment of $25,000 to the exemption total, again for low-income seniors only.)

RE the question of whether this policy change is a smart thing, Laura Figueroa's Miami Herald article on this change lets local officials do the talking:

''Our senior citizens living on fixed incomes are our most vulnerable group,'' Mayor Wayne Slaton wrote in a memo to Town Manager Alex Rey. "Providing them extra tax relief should continue to be our goal.''... More than 400 households are eligible for the exemption, said Rey, who estimated the town would lose about $24,000 in tax revenue as a result of the increased exemption. ''It's a minimum financial impact, but the benefit to the individual households was largely needed,'' Rey said.

Without belaboring the point, there's a good policy question here: if your concern is "senior citizens living on fixed incomes," why are you enacting a tax break that provides not a dime to low-income senior renters?

The short and not very interesting answer is that this is the option available to Florida local governments right now. But then what folks ought to be talking about is why better-targeted reform options, like a low-income property tax "circuit breaker" credit, aren't being made available to locals.

Rubio: No "Use Value" for Florida Businesses This Year

The St.Petersburg Times reports today that Florida House Speaker Marco Rubio thinks a preliminary plan to offer special assessment rules to certain Florida businesses is not going anywhere in this year's special session.

The idea, which Rubio apparently supports, is that at least some businesses ("modest businesses" and "mom and pop hotels" are mentioned in the article) should be assessed, for property tax purposes, not based on their market value but based on their current use.

This isn't an unprecedented idea. Pretty much every state does it for farms, assessing agricultural property based on its value for farming purposes rather than its (usually greater) value as a site for new condos. But the practice has attracted widespread criticism in Florida and around the nation for benefiting folks who clearly aren't farmers and clearly aren't financially needy-- and I can't think of any state that also grants this tax break to non-agricultural businesses.

If this practice can be abused by would-be farmers, at least there's a good intuitive reason for offering it to them: if every farmer in developing areas was forced to sell their property due to high property taxes, you'd get a much faster pace of development in formerly green areas. (Of course, the question of whether a general tax break for ag property is the best way of restraining development is an open one.)

But it's much harder to make the case for similar tax breaks for businesses, especially in an already-urban environment. How important is it to keep, say, a used-car dealer in the same place after a neighboring suddenly becomes a high-rent area?

And this "reform" idea ignores the larger question of why businesses are paying more property taxes to begin with-- which, of course, is because the state is granting unaffordable and poorly targeted tax breaks to homeowners while giving virtually nothing to businesses. If this summer's special session on property taxes results in major cutbacks in property taxes for everyone, the need for applying "use value" to businesses-- or enacting some better-thought-out form of business property tax cuts-- could diminish overnight.

Lawmakers Reach Tentative Agreement on Property Tax Cuts

Legislative leaders in Florida's House and Senate have agreed on a very broad outline for a property tax cut agreement. As described in the Orlando Sentinel, the plan has two parts:
1) Forcing local governments to cut property taxes this year, and limiting property tax growth in future years to the growth rate of personal income.
2) Replacing the much-maligned "Save Our Homes" tax break with a "super-sized" homestead exemption based on a sliding-scale percentage of home values.

On one level, it's hard to call this much of a victory for lawmakers, because it leaves unresolved the thorny question that derailed the regular legislative session: how much the tax cut will cost."This doesn't resolve what is by far the biggest disagreement: How much are we reducing taxes?" said Senate Democratic Leader Steve Geller of Cooper City. "Without knowing the size of the tax cut, you can't write a tax-cut bill."Similarly, until the exact description of the "super-sized" homestead exemption is known, we can't say anything about the fairness of this tax break.

But there are a couple of things we can say immediately:

1) Beware of any plan that imposes strict limits on the growth of local government spending without providing a reliable source of state aid to local governments. Locals haven't been increasing spending because they're interesting in mimicking drunk sailors-- they're doing it because the state has been gradually and systematically starving them of state aid. The Center on Budget and Policy Priorities has this analysis of the dangers of spending caps for Florida.

2) A homestead exemption is a major improvement for tax fairness over the mess that is known as "Save Our Homes." It would be hard to design a homeowner tax break more capricious or obviously unfair than Save Our Homes, and virtually any homestead exemption the legislature dreams up will be a major step forward for tax fairness.

3) Renters won't like this plan. The centerpiece of the reform is a tax break that goes only to owner-occupied homes.

More details will, doubtless, emerge in coming days. Stay tuned...

A Tax Cut-- Or a Tax Shift?

Question: What happens when you enact unaffordable tax cuts?
Answer: Some other tax (or fee) goes up to replace some, or all, of the lost revenue.

As the Marco Island Sun-Times documents, this process is already underway in some Florida localities, even though the state legislature has not yet voted to approve property tax cuts:

With a proposed property tax reform plan from state legislators likely to reduce spending at the local level, city officials are preparing ways to generate additional revenue. One of those options could be a public service tax on electricity, liquefied petroleum gas, manufactured gas and metered natural gas, City Manager Bill Moss said in a May 29 city council memo.

This shouldn't surprise us. There are very real indicators that locals simply can't afford to just drop their spending by the amount of lost property taxes.

This isn't news-- but it should serve as a reminder that there's no free lunch in Florida tax reform. If cuts will be enacted, cuts will ultimately have to be paid for.

Florida's Sales Tax Holiday: Back Again

Tomorrow marks the beginning of Florida's latest "sales tax holiday." This time around, purchases of various "storm-related" items will be sales-tax-free for the next 12 days.
Items that are temporarily tax-exempt include batteries, generators, tarps, storm shutters, and carbon monoxide detectors.

Lawmakers wanted to make it easier for Floridians (and, in fact, non-Floridians who happen to wander through a Florida Home Depot anytime for the next two weeks) to purchase storm supplies-- but they clearly didn't want them to go overboard. That's why the temporary exemption for flashlights, for example, specifies that flashlights costing more than $20 aren't exempt. Similarly, if you want your portable radio to be tax exempt, it better cost $75 or less. The bill that enables all this, HB 211 of 2007, is here.

The direct cost to the state from lost state sales tax revenue is estimated at $20 million. In addition, administering this 12-day tax break will cost the state about $290,000.

We've written before about the shortcomings of sales tax holidays as a tax policy tool. They reward consumers who have the flexibility to make their purchases during this two-week period. They make tax administration more difficulty by forcing retailers to work with two sets of rules governing sales tax exemptions: those in force for the next 12 days, and those in force the rest of the year. And above all, they allow lawmakers to bask in the P.R. glow of having enacted a tax cut (and one that probably benefits low-income families most, as a share of their income), without actually adding up to any real savings for these families-- and without doing a thing to mitigate the overall unfairness of the Florida tax system. In sum, it's a "sound and fury" tax break-- all hat and no cattle. Read ITEP's policy brief on sales tax holidays here to find out more.

The Florida Department of Revenue has more information on the holiday here.

Local Governments and Property Tax Reform: No Longer Crying Wolf

As local governments loudly protest the likely impact of the local property tax cuts that will likely be imposed on them by Florida lawmakers in a special session next month, some lawmakers (in particular, House leader Marco Rubio) have argued that locals are merely crying wolf when they say these cuts will be unaffordable.

But as today's Times-Union notes, some local governments are already doing more than protesting.

[Jacksonville Mayor John] Peyton has asked his staff this month to reorganize
the government in an effort to save money in anticipation of state property tax reform expected to drastically reduce the city's revenue next year.

The headline today: Peyton has eliminated the position of "parks director" from the city's administrative structure.

Is this "trimming the fat" or hamstringing an important and basic function of Jacksonville city government? That's in the eye of the beholder, of course. But the point here is that Jacksonville leaders are worried enough about the impact of impending property tax cuts that they're already taking a scalpel (or a hacksaw, depending on your perspective on the importance of parks to a city's well-being) to basic government functions before the special session even begins.

Things obviously will get even less fun for Jacksonville and other cities if Rubio's property tax cut plan goes through next month.

More Locals Enacting Senior Homestead Exemption

In yesterday's St. Petersburg Times, Eileen Schulte notes that a growing number of local governments are using their new authority (granted by the state in the 2007 regular legislative session) to double the local-option property tax homestead exemption for low-income seniors.

This means some seniors in selected areas of Pinellas County will get an exemption for the first $75,000 of value in their house. (The state offers a basic $25,000 exemption; an existing local-option exemption, authorized in the late 1990s, allows locals to piggyback another $25,000; this year's legislation allows a third increment of $25,000.)

If this sounds like a pretty big exemption, it is-- but it's important to remember that unlike the utterly un-targeted all-ages tax breaks being discussed by the legislature so far this year, the senior homestead exemption is limited to the low-income families who need it most. In particular, seniors with incomes exceeding $23,000 or so can't get the extra $50,000 local-option exemption.

Simply expanding this exemption to all age groups would be a simple way of trying to cope with anti-property-tax angst-- but would do nothing at all for Florida homeowners with incomes over this very low level, so that's not the answer for the Sunshine State.

But some variation on a means-tested homestead exemption is a pretty good idea. With higher income eligibility limits, this is the sort of solution Florida lawmakers ought to be looking at-- if they can ever figure out a way to pay for it.

New Ideas for Property Tax Reform

With about three weeks left to go before a scheduled special legislative session on property tax reform, a joint House-Senate committee is listening to new ideas about how to reform the state's homeowner property tax breaks. The idea of the day: percentage-of-value homestead exemptions.

It's a simple idea. Right now, most Florida homeowners get to exempt the first $25,000 of potentially taxable value from all property taxes. From the cheapest shanty to the most expensive mansion, every home gets the same basic exemption. But several proposals discussed in today's hearing would change the homestead exemption from a flat-dollar amount to a percentage of a home's value.

To see the impact of such a change, take two neighboring homes: one valued at $100,000 and the other valued at $1 million. The current $25,000 exemption provides the same dollar amount of tax cut for the houses. But a percentage-of-value cut of, say, 25%, would give the low-valued house a $25,000 exemption (the same as it gets now) while the higher-valued house would get a $250,000 exemption-- ten times as big as the poorer house.

As this example indicates, the big winners from such an approach would be owners of expensive houses-- hardly a tax-fairness strategy that most lawmakers would champion.

But lawmakers also heard two wrinkles on this broad plan today that would allegedly make the percentage-of-value homestead less unfair. One idea would apply lower percentages to higher-valued houses. In the previous example, the higher-valued house might get an exemption for 25 percent of value up to a certain amount (say, $300,000 of home value) and then an exemption for 15 percent of all value above that. This would still leave the wealthy homeowner better off: their exemption would be $180,000 under this approach (25% of $300K is $75,000; 15% of $700K is $105,000), which is more than seven times higher than what the lower-income homeowner would see in tax cuts.

So it's less unfair than a simple percentage-of-value exemption-- but not by much. And this sort of exemption certainly wouldn't be the most transparent approach to property tax cuts. (Although by comparison to the much-lamented "Save our Homes" tax break, it sounds remarkably straightforward.) And neither of these proposal would do much to target property tax breaks to those homeowners who are truly (to coin a phrase) in danger of being taxed out of their homes. Got a home? You'd get a tax break.

The second twist on this basic tax cut proposal heard by lawmakers today would vary the percentage exemption not by the value of the house but by its geographic location. The bigger a district's median home value, the bigger that district's homestead exemption would be. This approach is certainly a refreshingly new approach to inequitable property tax cuts, but is inequitable nonetheless. Reserving the biggest property tax breaks for the wealthiest areas will be cold comfort for fixed-income families living in less-wealthy districts who are nonetheless simply unable to pay their property tax bills-- and will provide a huge boon for many upper-income families who simply don't need such a tax break.

Florida wouldn't be the only state with such an upside-down property tax break. The New York Fiscal Policy Institute's Frank Mauro has beaten the drum convincingly for years to get rid of a similar, poorly-thought-out homestead exemption in New York called the STAR program. As ITEP pointed out in a 2005 study, providing bigger exemptions to wealthier districts creates inequities that are hard to justify:

[T]wo homeowners with the same income and the same home value can receive dramatically different exemptions simply because they live in different counties.

Unjustifiable discrimination between the tax treatment of identical houses is nothing new in the home of the Save our Homes tax break, of course-- but that's no reason to try it a second time.

Property Tax Cuts: 'Fatal" to Local Governments?

Florida House Speaker Marco Rubio thinks that local governments have a spending problem. And while he's expressed interest in a number of approaches to resolving the state's property tax dilemma, a common theme throughout has been requiring local governments to slash their property tax collections-- and not giving them a way of paying for the cuts.

But as Charles Rabin and Breanne Gilpatrick document in today's Miami Herald, a growing number of local governments are sounding the alarm.

''What the Legislature is proposing would kill us,'' said El Portal Village Manager Jason Walker. "We're not going to afford a police department anymore. No manager. No staff. It's going to go back to a single clerk.''

The solution that's scaring Walker and other local leaders? What Rabin calls a "super-sized homestead exemption." Details are fuzzy, but the general idea is that the existing $25,000 homestead exemption would be replaced by a percentage-of-value homestead exemption that would give larger exemptions to more expensive houses.

As Rabin and Gilpatrick correctly note, not every local government is paralyzed with fear at Rubin's latest brainstorm. In particular, towns that have a big non-residential tax base-- hotels or other businesses, for example-- have less to fear from a state-mandated tax break that goes only to residential homes.

Are these local officials crying wolf, as Rubio appears to think, or do the threatened state property tax cuts truly threaten Florida locals' ability to fund important services? The truth almost certainly varies from city to city. But one thing is for sure-- for taxing districts that are truly cash-strapped, the "super-sized" homestead exemption will push these districts unnecessarily closer to fiscal insolvency. A less costly approach, such as a "circuit breaker" tax credit, could help target tax relief to the fixed-income families who truly need it at a much lower cost. So the real question isn't whether Jason Walker and his ilk would truly be "killed" by the emerging legislative proposal-- the question is why Florida lawmakers would take such an unnecessary risk with better options available.

Florida Lawmakers' Property Tax Shell Game

The Sun-Sentinel's Anthony Man puts two and two together-- and notices that Florida lawmakers' actions on property tax reform this year didn't really match their rhetoric:

The Florida Legislature ended its annual session without achieving its No. 1 goal: reducing property taxes. Legislators did, however, vote to increase property taxes by $546 million.It happened because of the way Florida allocates money for schools. The new state budget, effective in July, increases spending on education and orders local school boards to charge higher property taxes to pay for it....In other words, representatives and senators of both parties voted for higher local property taxes for schools at the same time they were declaring property taxes in Florida have reached crisis levels and must be cut.

The Sun-Sentinel's Man clearly sees this as an act of cowardice and hypocrisy on the part of legislative leaders-- and he's probably right:

Lawmakers could have reduced property taxes for schools, or held them steady, without cutting money for classrooms by shifting funding priorities in the state budget. But that would force them to make difficult spending choices -- just the way they want municipal and county governments to make tough choices about local spending.

Man's criticism is right on. The ongoing Florida fiscal crisis was created, at least in part, by the unwillingness of state leaders to enact sustainable tax reform at the state level. Instead, they cut state taxes pell mell and "paid for it" by shifting costs to local governments. For local leaders facing the prospect of budget cuts, the hypocrisy of state leaders' insistence that locals must make difficult fiscal policy choices must seem gallingly hypocritical. At long last, state lawmakers should be called to account for this fiscal shell game.

ABC's "Nightline" Gives Rubio a Free Pass on Tax Reform

House Speaker Marco Rubio's tax plan-- which would cut property taxes dramatically and offset some of the revenue loss with a higher sales tax-- has been (correctly) criticized as a tax shift that will hit the poor hardest. But little attention has been paid to Rubio's stance on the property tax as a revenue-raising device, which is essentially that he hates it:

Should we tax the American dream? We don't tax food or medicine in Florida. Why would we tax home ownership? But we do.

The comparison is a bit silly on its face. Like our homes, food and medicine are what most people would consider "essentials"-- things we can't live without. And more and more starts now are exempting both of these purchases from their sales tax. But food and medicine are just part of each state's sales tax base. If you exempt them, you've still got plenty of consumption left to tax. (Although states exempting them have to increase the rate on everything else to keep themselves whole.) But repealing the real property tax, even if it's only done for homeowners, would basically eliminate an entire tax base. Given the zeal with which Florida lawmakers have moved to completely exempt other types of property (like intangible stocks and bonds) in recent years, it's clear that what Rubio proposes is simply wiping a tax off the face of the map.

So when I saw that ABC's Nightline was doing a story on the emerging Florida property tax mess, I was heartened. Hey Nightline, you're gonna ask Rubio to explain why repealing the nation's oldest major tax is a good thing, right? Let's hear the hard questions:

CHRIS BURY (ABC NEWS): In your heart of hearts, would you like to do away with the property tax altogether?
REPRESENTATIVE MARCO RUBIO (REPUBLICAN): I think the property tax is a horrible way to tax people.

And the interview sorta stops right there. Not the most incisive questioning.
So here's what Nightline should have asked Rubio:
1) Isn't a well-administered property tax based on a pretty decent measure of ability to pay-- the value of your home?
2) And to the extent the property tax falls short of this goal (as it arguably does when home values are skyrocketing in a temporary way), aren't there approaches, like a circuit breaker credit or assessment cap, that are demonstrably better ways of fixing this problem than outright repeal?
"Reform, not repeal" is a tired refrain. But that's because it's a pretty sensible tune to be humming. You simply can't argue with a straight face that the property tax cannot be reformed and must simply be junked-- there's just no legitimate argument to make on this point.
Which makes it a shame that Nightline didn't ask just that one hard question.

Ding Dong, The Witch Is... Going on Vacation

Reuters reports that Florida lawmakers have given in to the inevitable and thrown in the towel on their efforts to craft a big fat property tax cut before the end of the regular legislative session.

The good news is that this was exactly the right thing to do. Various editorial boards have pointed out that a poorly constructed tax reform thrown together at the last minute could be worse than no tax reform at all. The St. Petersburg Times explains quite well what a good property tax fix should do:

Floridians need property tax relief, but they need it done right. That means it has to be equitable, fair and reasonable. It should be targeted toward the taxpayers who need it most: businesses, nonhomesteaded property owners and recent home buyers. It should spread the tax burden, not merely shift it from one group of taxpayers - homeowners - to another - consumers who may not even own property. And it should not force local governments to make painful cuts in programs and services that residents expect in safe, vibrant communities.

Which makes it unfortunate that the plans being debated by the House and Senate this past week pretty much don't achieve any of these goals.

And which leads us to the bad news: the legislature will be back for a special session in June, and all indications are that they'll be discussing the same basic plans they've been fighting over for the last couple of weeks. The sense you get from reading lawmakers' quotes this week is that they've got broad agreement on most things, but simply don't have time to iron out all the details before the session is scheduled to adjourn at the end of the week. Here's House Speaker Marco Rubio:

“The good news is I believe we have made tremendous conceptual progress in our conversations with our colleagues the senate. We can feel confident that property tax relief and reform is going to happen for Floridians and God willing, it’s going to happen this year,” he said.“The bad news is, and it’s really not all that bad, is that in order to put this into practice 72 hours simply is not enough time."

In other words, the solution lawmakers come up with next month is going to be a cross between the House approach (an unaffordable, unfair property tax-for-sales tax swap) and the Senate approach, which is merely unaffordable. So to paraphrase Rubio, the good news isn't all that good, and the bad news remains pretty bad.

Tax Debate: "Caught Between the Bad and the Ugly"

As Florida lawmakers totter toward the May 4 conclusion of this year's legislative session, conferees are feeling growing pressure to come up with a solution-- any solution-- for the state's property tax woes. Yet, as the Daytona Beach News-Journal editorial board points out, there are good reasons to resist this urge:

The best course of action for Floridians is none at all. The constitutionally mandated Taxation and Budget Reform Commission starts a comprehensive review of all taxes this year. There's no reason for the Legislature to push bad legislation forward, and plenty of reasons to step back and cool off.

Regarding the specific shortcomings of the plans put forth by the House and Senate so far, the News-Journal faults the Senate proposal for expanding the much-lamented "Save Our Homes" tax break rather than repealing it, but thinks the House plan is much worse:

The sales-tax swap is a bare-faced shift of tax burden onto the shoulders of low-income Floridians, and an even more blatant picking of city and county government pockets. (House leaders claim they plan to redistribute the money to local governments, but lawmakers also promised several years ago to stop hitting local governments with unfunded mandates, a pledge broken almost immediately.)
All told, the House measure would carve as much as $47 billion from local governments' coffers. It's money most can't afford to lose and still keep providing services demanded by city and county residents.

This is all dead on. None of the plans currently on the table achieve the sort of meaningful reform that Florida really needs. If Florida property taxes are to "drop like a rock," as the Governor has requested, it should be done in a way that eliminates inequities in the current property tax and doesn't leave locals holding the bag.

Are Cellphones a "Sin?" Florida Thinks So

In virtually every state, some of the items we consume are taxed at higher rates than the general sales tax rate. These tend to be items that are consumed by two categories of people: tourists from other states and "sinners." A good example of the first category is hotels, which in Washington DC are taxed at 14.5 percent, more than double the regular sales tax rate. This is seen as a good way of dinging visitors from around the country, since any DC resident who stays in a DC hotel is, in fact, staying less than 10 miles away from their actual home. Typically, the second category includes alcohol, cigarettes, and (more or less) gasoline-- things that we generally wish people would consume less of.

Then there are cell phones. It's hard to describe using cell phones as an inherently damaging activity (unless you're driving at the same time), apart from the subtle but real damage it arguably does to our social fabric. But Florida, like many states, has decided to tax the heck out of cell phone use, with combined state and local tax rates approaching 20 percent in some areas.

Once upon a time, there was a pretty good argument for considering cell phones a "luxury" that could be taxed at a higher rate because its consumers could afford it. (Remember Gordon Gekko's lunch-box-sized cell phone in "Wall Street?) But now these phones are pretty universal, and a growing number of consumers are abandoning their land lines entirely and living on a cell phone. Given this change, cell phones are approaching the vaunted status of "necessity" currently enjoyed by food, clothing and shelter.

So why tax this pseudo-necessity at a rate three times higher than the regular sales tax rate? Because it's easy, says one analyst:

Kurt Wenner, a senior analyst with Florida Tax Watch, also said government has a penchant for taxing utilities because companies pass through the taxes to all consumers through their bills. "It's an easy way to do it," Wenner said.

This is exactly right. High taxes on utilities have historically been an easy thing for lawmakers to do because the costs get passed straight through to consumers.

Current legislation would take baby steps toward equalizing the tax treatment of phone and other services-- but the real question Florida lawmakers should be asking themselves is, why baby steps? Why not tax this form of consumption at the regular sales tax rate right now? The most likely answer-- that lawmakers are too busy finding creative ways of blowing tens of billions of dollars on poorly designed property tax "reform" schemes-- isn't very comforting.

Orlando Sentinel: "Go Halfway" on Tax Reform

The editorial board at the Orlando Sentinel sees little progress in the never-ending legislative debate over property tax cuts:

[N]egotiations between the Senate and House on two wildly different tax-cut plans have gotten nowhere. They do little to fix inequities in Florida's property-tax system, which gives longtime homeowners a big break while their new neighbors pay much more for the same services. Nor are they closer to preventing local governments from enjoying huge spikes in their budgets simply because of a run-up in property values, as Florida has seen in the past four years.

But the Sentinel takes the defensible-but-odd position that anything is better than nothing, so the Senate's package should be adopted by virtue of being the least costly approach:

It's better to slow down, adopt the Senate's more reasonable approach to tax relief and then rely on a special commission to take its time and thoughtfully study tax reform.

It's understandable that any long-term observer of state tax politics would laugh ruefully at the "let's have a tax reform commission" solution. But this might be exactly the time for such an approach. If (as currently seems to be true) both houses have dug in their feet in support of suboptimal tax-cut plans, maybe the best thing for lawmakers to do would be to go home, cool off and come back-- either after the commission has started meeting or else early this summer-- to try and cobble together something sensible. It's transparently true to this outsider's eyes that when the most obvious reform option-- a personal income tax-- is simply not on the table, everyone needs to take a deep breath, check their ideological luggage at the door and start asking questions about what it will take to make the Florida tax system sustainable.

Property Tax Talks Underway

This is the week that House and Senate conferees have set for negotiations over how exactly to cut local property taxes this year. The Miami Herald gives a concise update on what the big issues are-- and how little progress was made in Monday's opening session:

No deal on how much local governments should roll back their tax base. No decision on whether or how people could transfer tax savings from a primary residence to a new home. Nothing on swapping out homeowner property taxes for sales taxes.

With the most obvious (and fairest) tax reform choice--that is, an income tax-- off the table, the remaining choice facing lawmakers this week is whether their poorly targeted property tax cuts should be done in a way that is (a) unaffordable or (b) unfair. Not much of a choice.

Rubio Tax Plan: Who Loses?

The South Florida Sun-Sentinel's Harriet Brackey has a thoughtful piece on who would win--and who would lose-- under the sales-tax-for-property-tax swap that House Speaker Marco Rubio has pushed through the House:

For whom would an increase in sales taxes be a burden? The poor, certainly. Younger people. Those in the work force.

This terse but accurate summary is worth unpacking.

The regressive impact of sales taxes on Florida's tax system is a no brainer, and has been well documented by ITEP in the past. No major tax levied by state or local governments (including the property tax) hits low-income families harder. Shifting further away from property taxes and towards sales taxes would further shift Florida's property tax load onto the very poorest residents of the Sunshine State.

Less obvious is Brackey's assertion that "younger people" would be hit hard, but it makes sense on a moment's reflection. Younger people are, in general, poorer, which means they'll get hit hard by a sales tax hike. And they're less likely to own homes, which means they'll benefit less from homeowner property tax cuts.

Even less obvious, to me was Brackey's assertion that "those in the work force" would get hit hard. But the story makes sense once she tells it:

Frank Williams, an economist for the Florida Legislature's Office of Economic and Demographic Research and co-author of the study, said another important finding of that study was that people who aren't retired pay a greater proportion of their income in sales taxes than retirees. "The burden of retirees was about half that of working families," Williams said. "They don't buy as many taxable goods."

So the question of the day is: how can the House leadership defend a tax cut that shifts the tax load onto young working people? Not very Reaganesque....

House Passes Property Tax Cut Bills

The Florida House of Representatives has passed legislation that would take the first step towards eliminating homeowner property taxes across the state, replacing some of the revenue loss with an increase in the state sales tax rate.

The Associated Press gives all the multi-state context you really need on this one:

The proposed state constitutional amendment...could make Florida the only state in the nation without either a personal income tax or property taxes on primary homes, known as homesteads.

Any financial planner will tell you that diversification is a pretty good thing-- and any parent will tell you that putting all your eggs on one basket is a bad idea. Apparently Florida House leaders haven't been listening to either of these two constituencies...

A More Sensible Approach to Property Tax Reform?

As the House majority draws its line in the sand on property tax reform, Orlando Sentinel columnist Mike Thomas has a better idea about how to pay for cutting property taxes.

He suggests a three-pronged plan for coming up with the state revenue needed to pay for big property tax cuts:
1) A 25-cents-per-gallon hike in the gas tax.
2) Increasing the tax on real-estate transactions. His ballpark suggestion is a base tax of $750 for each home sold, with a higher tax for more expensive homes.
3) Expand the sales tax base to include services.

There are good things to say about each of these ideas. Taking them in order:
1) You can make a good case that transportation funding in Florida is woefully underfunded. You can also argue (as Thomas does) that we should be discouraging people from driving as much as they currently do.
2) A real-estate transaction tax could raise a fair amount of money, and could be designed in a way that would hit more expensive homes harder.
3) It's absolutely the best single change that could be made to Florida's sales tax, and is much smarter than the House majority's approach of simply increasing the tax rate.

Now for the bad news:
1) The gas tax is regressive. Hiking it would make an already-unfair tax system even worse from a fairness perspective. And the two goals Thomas implicitly has in mind for the gas tax hike (raising revenue to pay for property tax cuts, and encouraging people to scale back their driving) are at cross-purposes with each other.
2) Even if you enact a real-estate transaction tax in the sort of graduated way Thomas is suggesting, it's likely to remain regressive. And this sort of tax has no provision for distinguishing between low-income families who can barely scrape together enough in mortgage payments to own a home and wealthier families for whom a $750 tax is hardly noticeable. The value of the home is something of an indicator of ability to pay, but this would still hit low-income families hard. (A similar idea in North Carolina is riling up developers as we speak.)
3) As with the gas tax, expanding the sales tax base would take the single biggest, most regressive tax Florida state government currently uses and make it an even bigger piece of the revenue pie. It would make the sales tax fairer in the sense that it would treat more (if not all) consumer transactions the same way, but it would do little to mitigate the overall regressivity of the Florida tax system. And from a balance perspective, it's the wrong thing to do. The major source of imbalance in Florida's tax system is that it relies much more heavily than most other states on the sales tax-- and not at all on the income tax. This change would make this imbalance worse, rather than better.

Which leads us to the question of what would be a better approach. Thomas' ideas could be improved on at both ends.

First, the property tax side. Thomas accepts uncritically the idea that we should be doing away with property taxes on homes:

I think property taxes are evil. So like the House, I eliminate them on homes.

Well, that's a pretty big jump. Even when properly administered, property taxes are never the fairest taxes in the world. (And when poorly administered, as in Florida, they're a nightmare that makes pretty much everyone angry and frustrated.) But they're a historically important revenue source, and a stable one-- and there are sensible reform options available to make them work much better in Florida.

What are these options? How about repealing the "Save Our Homes" tax break and replacing it with a targeted "circuit breaker" tax credit for fixed-income families, and maybe expanding the homestead exemption. People aren't talking about these options-- but that doesn't mean they shouldn't be. In any event, Thomas gives up on the property tax far too easily. Reform, rather than repeal, should be the mantra of Florida policymakers on the property tax.

On the revenue-raising side, Thomas has the luxury of not being an elected official, so he's got nothing to lose by bringing up the income tax question. It's a no-brainer from an economics perspective: in pretty much any form you can devise one, the income tax is fairer and more sustainable than any of the revenue sources Thomas comes up with.

It's also worth rehashing the question of whether outright repeal of the intangible property tax was a smart idea. It's technologically easier to administer this tax, in some ways at least, now than it used to be. There ought to be a way to reinstate this tax-- and if Florida does, its property tax base will much better reflect each family's overall ability to pay than it currently does.

This is pie-in-the-sky stuff, for sure. And Thomas deserves kudos for touching not one but two "third rails" of Florida politics in his recommendations. But I think anyone who's coming up with their own ideal plan for Florida tax reform needs to start off by explaining why we shouldn't be talking about an income tax.

"Duplicitous" Tax Reformers in Florida House?

As any Floridian who hasn't been living under a rock knows, the property tax debate this spring has devolved into a contest to see who can cut taxes the most-- and the fastest. For those of us who think that state governments should be the primary source of funding for elementary and secondary education, it's bad enough to see state lawmakers talk of forcing local property taxes downward without providing replacement state funding. But now, as the St. Petersburg Times editorial board notes, the legislature is taking one step further-- forcing a more-than-$500-million increase in some local property taxes to pay for public education.

At a time when House and Senate leaders are speaking boldly about their big plans to cut local property taxes, it's a bit counterintuitive to require locals to increase them at the same time:

Under both the House and Senate spending bills, the "required local effort" property taxes for schools next year would jump by 7.4 percent, or $545-million. By comparison, the Senate's new "Savings Now" tax reform would force cities and counties to reduce property taxes by $1-billion. In other words, for every $2 local governments cut property taxes, the state would raise them by $1.

You've got to admire the genius of this. State lawmakers get to make grandstanding statements about how they're going to force locals to curtail their out-of-control spending habits by cutting property taxes, but then go behind the scenes to make locals do what state officials don't have the backbone to do themselves: provide sufficient funding for schools. It is, indeed, a "duplicitous" approach to tax reform, as the Times suggest.

Car Tax Lessons for Florida?

Florida lawmakers are running away from the property tax, at least in their rhetoric, as fast as they can. And no form of property tax arouses more bile than a tax on motor vehicles. So it's interesting and instructive to see a form of property tax on cars being floated as a local revenue-raising option in Indiana.

The developing debate over how Indiana local governments ought to be funded has centered, so far, on the local property tax and the conditions under which locals should be allowed to levy income taxes to pay for property tax cuts. But there's a new game in town: Rep. Chet Dobis suggests allowing local governments in northwestern Indiana the option of levying a "wheel tax" of up to $50 per vehicle to pay for an expanded commuter rail system.

As a fellow Dem, Rep. Linda Lawson, helpfully points out, the car tax "is one of the most hated taxes... the people in my community... would be just outraged if we gave them another tax." And that certainly seems to be true wherever you look. Opposition to the car tax almost single-handedly got former Virginia Governor Jim Gilmore elected and helped to give California Governor Gray Davis the boot. And if Connecticut voters aren't currently buying Governor Jodi Rell's plan to repeal that state's car tax, it's not because they like paying taxes on their cars.

But that's not, in itself, a sufficient reason to deny the car tax a place in a state's revenue system. Anti-tax sentiment is easy to channel, and the ease with which the car tax can be vilified is at least partially due to the number of syllables it takes to pronounce it. ("no car tax," "no death tax," "no food tax," all lend themselves very well to soundbites and slogans.)

You can also make a good case that a properly functioning property tax should take account of all kinds of property that most states currently don't tax, whether it's your car or your stock portfolio or that $3,000 Rolex. Property is wealth-- plain and simple. When states decide (as most have) that they're not gonna tax the value of your Rolex or your car or your stock portfolio, what's left is the one kind of "wealth" that is least recognizable as such-- homes. For many people, homes aren't a luxury and they aren't wealth-- at least not usable wealth.

So I've got a fair amount of sympathy for recognizing that the property tax should apply to things other than homes. Having said that, the wheel tax proposal seems like the wrong way to go, for three reasons:

1) The proposed wheel tax would be a flat-dollar amount. Maybe $10, maybe $50. But the biggest Bentley would pay the same tax as the tiniest Toyota. By comparison to the more sensible approach of taxing cars based on their value, the wheel tax proposal would be sharply more regressive-- a much worse deal for low-income families-- because $50 is a much bigger share of income for someone earning $10,000 a year than for someone earning $100,000 a year.

2) Car taxes can be written off on your federal income taxes (if you itemize) if they are based on the value of the car. If they're just a flat dollar amount, they can't. So the choice to impose the flat wheel tax basically means deciding that Indiana doesn't want the federal government to pick up part of the tab. A flat-dollar wheel tax leaves federal money on the table.

3) A "flat-dollar" tax is about as slow-growing a revenue source as you can invent. The only thing that can make revenues go up from year to year is an increase in the number of cars. (By contrast, income and sales tax collections increase, more or less, automatically with inflation.) The amount this tax brings in from each existing car actually shrinks a little bit each year: $50 a year in 2007 is worth a little bit less, after inflation, in 2008, a little bit less in 2009, etc.

As another lawmaker points out, Dobis deserves "all the credit in the world" for bringing up what is being described as a "political third rail." (Seems like Indiana has more third rails than the New York subway...) And it would be a good thing if this proposal resulted in some enlightened deliberation over the future of Indiana property taxes. But it's certainly not the fairest-- or most sustainable-- way to fund Indiana's transportation funding needs.

Of course, Florida doesn't have anything that resembles a car tax. The state's constitution would have to be changed if lawmakers wanted to levy one. (A thing that is true of most needed reforms to Florida's system, by the way.) But it would be nice if the ongoing property tax debate could be extended to think more generally about what the property tax really ought to apply to. It's hard to argue that cars universally ought to be excluded from taxation, and to the extent that the Florida debate centers on fairness, folks should be discussing the fairness of taxing homes while NOT taxing cars and intangibles.

Maybe that's a debate for 2008....

Seniors Get a (Bigger) (Unfunded) Tax Break

Earlier today, Governor Bill Crist signed into law a bill increasing the allowable local property tax homestead exemption for fixed-income seniors from $25,000 to $50,000. In 2007, "fixed-income" means just over $24,000 a year.

On its face, this is a terrific and bold move by the legislature and the governor. Floridians should absolutely be concerned about sheltering seniors from excessive property taxes, and fixed-income seniors in particular. And this homestead exemption seems like a fine way to do it.

But it's not that bold a move, and here's why:

(1) Florida voters already decided that they like this idea, overwhelmingly supporting a ballot initiative allowing counties this option last fall.
(2) The new homestead exemption is optional, and is an option to be exercised by county governments-- not the state. In fact, as the House of Representatives' fiscal note on the bill notes, it won't cost the state a dime.

That doesn't mean it's free, of course. The same fiscal note adds:

However, if every jurisdiction adopted the exemption at $50,000 it was estimated that this would result in a $3.1 billion dollar loss in taxable value.

And that loss in taxable value would have to be made up by the counties-- not the state.

So it's great that the state is giving counties more options. And this particular option is quite well targeted to the folks who need the most relief. But this is a politically cost-free call for state lawmakers.

As he signed the bill, Governor Crist noted,"We have an obligation to provide our state's seniors the utmost respect and dignity." Very convenient for him that the state doesn't have an "obligation" to spend a dime paying for it....

Property Tax Reform: A Zero-Sum Game?

The Palm Beach Post's S.V. Date captures quite well the basic political dilemma facing Florida lawmakers as they seek to fix the state's property tax inequities. Here's the lead:

If a property tax system unfairly put hundreds or even thousands of dollars in your pocket each year, would you vote to change it?

Indeed. Unfair or not, plenty of Florida homeowners are doing just fine, thank you, under the current "Save Our Homes" tax break. But Save Our Homes does nothing for businesses, renters, snowbirds, and first-time homeowners. If these groups are to get property tax relief, the revenue loss has to get made up in some way, and none of the options sound especially palatable to lawmakers: the options are either to
(1) hike property taxes on everyone else (meaning homeowners currently protected by Save Our Homes), or
(2) come up with a new state revenue source to pay for property tax cuts (which means some kind of state tax hike).

Approach #2 is politically off-limits, it seems, because the only state tax anyone is talking about increasing is the one that's already among the highest in the nation: the sales tax. Meanwhile, the more sensible option (enacting an income tax) is politically taboo.

Which leaves approach #1, which Date characterizes as a "zero-sum game."

And, as Date points out, if you put anything before the voters that takes away the "Save our Homes" break, the numbers say it's gonna lose

:[H]omesteaders, as politicians know, are more likely to turn out to vote than non-homesteaders. How much more likely?
Webster, R-Winter Garden, estimated that two-thirds of all voters who actually vote at the polls are homesteaders.
Operatives for the Democratic and Republican parties said voter turnout ranges by geographic area from 60 percent to 90 percent.
University of South Florida political scientist Susan MacManus said that for special elections - as in the sort of election Crist and lawmakers would prefer later this year - the statewide figure could approach 80 percent. That's why Webster and others agree that it may be difficult to pass a proposal that does not somehow further help homesteaders, even though they are the one group that already enjoys a huge financial benefit.

All of which means that lawmakers need to come up with a way to relieve property taxes on the businesses and renters who are being hit hardest currently, but in a way that leaves most people better off. Not to be a broken record, but can you say "income tax?"

TaxWatch Report Gets it Right on Internet Transactions

A new brief from the Florida TaxWatch group takes a breather from the seemingly endless property tax debate to remind us that there are other kinds of tax loopholes to be closed. The TaxWatch brief on the streamlined sales tax project cites data from the University of Tennessee estimating that in 2003, Florida lost $1.1 billion in sales tax revenue because it was unable to collect sales taxes on "remote sales"-- that is, Internet-based or mail-order transactions.

There's a pretty straightforward argument to be made that Internet-based retail transactions ought to be taxed. If you can buy something on the Net tax-free, but the same item would be taxed at a bricks-and-mortar retailer, that discriminates against the bricks-and-mortar store-- and discriminates against the (likely lower-income) folks who don't have access to the Internet. The sales tax you pay shouldn't depend on how you buy a thing. For a more detailed defense of this position, check out our policy brief on this topic here, which covers pretty much the same ground as the TaxWatch piece.

TaxWatch president Dominic Calabro argues that "Florida should not raise or institute new taxes until the state makes every reasonable effort to collect the taxes that are already legally owed and not collected."

Is this a sensible position? Well, mostly. Calabro is absolutely right that Florida lawmakers need to get on board with the streamlining project, not least because doing so would make Congress more likely to do its part to allow streamlined states to collect sales taxes on Internet transactions. But Florida can't make this happen on its own. In the end, Florida can only start counting this money when Congress passes enabling legislation-- and it's not obvious that folks on Capitol Hill are ready to do this.

So there's a decent chance that if Florida lawmakers literally adopt Calabro's recommendation and refuse to hike any other tax until this problem gets fixed, they could be waiting a long time. And that's why Calabro is only "mostly" right on this point. But kudos to TaxWatch for taking a principled, if unpopular, stand on broadening the sales tax base.

Florida's "Tax Freedom Day"

The St. Petersburg Times' Christina Rexrode reports on the latest 'Tax Freedom Day" report from the Washington-based Tax Foundation:

Even without a state income tax, Floridians still bear the 12th heaviest tax burden in the country. Florida's Tax Freedom Day - the point in the year when residents have earned enough to pay off tax obligations - will come May 2 this year, the nonpartisan Tax Foundation states in a report released today.

So what should we think of these numbers? It's always nice to get a little outside input to keep things balanced. But the impartial expert in Rexrode's story is... the Tax Foundation's Curtis Dubay. Dubay's quotes are good, and put some meat on the bones of the story: Dubay notes that a growth in the high-income population of Florida is probably a big driver in this result, and that Florida's own tax structure has relatively little to do with its ranking among the states.

But there's more to know here. The Center on Budget and Policy Priorities has taken on the thankless task of reminding policymakers and the media why the "tax freedom day" concept is not that useful in describing the impact of taxes on your average family. It would be nice if the Times gave even a brief nod to the CBPP's substantive criticisms of the "tax freedom day" concept.

Check out the CBPP report here.

Can Nevada Offer a Solution to Florida's Property Tax Woes?

The Miami Herald's Lisa Arthur thinks she's found the solution to Florida's property tax woes: just do what Nevada did back in 2005. To hear Arthur tell it, Nevada eliminated pretty much every property tax inequity one could think of:

• Issue: Homeowners were about to be taxed out of their houses.
• Solution: Tax bill annual increases were capped at the lesser of 3 percent or the rate of inflation -- no matter how high a home's value climbs.
• Issue: Commercial property owners would shoulder an unfair tax burden without a cap. And as values on their properties and their taxes rose, they would pass the cost to renters.
• Solution: Tax bill increases were capped at 8 percent annually for commercial property, including rental property. If a landlord could prove rents are at or below the fair market value set by the federal government, they get the 3 percent cap.
• Issue: Snowbirds with second homes would get slammed unfairly if they didn't get the same tax breaks as full-time residents.
• Solution: As long as they don't own another home in Nevada, out-of-staters with second homes get the same 3 percent cap as full-time residents. If they rent the home part of the year, the cap goes to 8 percent. If the rent meets the affordability definition, they get the 3 percent cap.
• Issue: Newcomers to the state and first-time home buyers who bought into a hot market with escalating home prices would get hit with much higher tax bills than longtime homeowners in the same neighborhood.
• Solution: In Nevada, the tax break stays with the property. The new home buyer inherits the seller's tax bill no matter how high the value of the property has climbed or what it sells for.

Put this way, Arthur's got a point. Pretty much every property owner in Nevada has protection against large tax hikes (where "large" means more than 3 percent a year). But Arthur is setting the bar pretty low for a successful property tax reform. Her benchmark appears to be that there's a mechanism restricting the growth of everyone's property taxes to something resembling the growth rate of inflation. Such an oversimplified benchmark overlooks two equally compelling (actually, even MORE compelling) objectives of property tax reform:
1) preserving adequate revenues. Capping everyone's property tax growth at 3 percent will make taxpayers happy, but only until they notice their schools don't have new textbooks anymore.
2) targeting property tax breaks to those who need them. Arthur recognizes the universal refrain of people "being taxed out of their homes," and clearly thinks preventing this is a good goal, but says nothing about the fact that simply capping the growth of everyone's property taxes is a remarkably blunt instrument for achieving this goal. If you're a fixed-income Nevada homeowner whose property taxes were unaffordable before 2005, the 2005 reforms don't help you.

Arthur is right in one important respect: if you cap everyone's property taxes, inequities in property taxes between different property owners will be less noticeable, and complaints about higher property taxes will likely diminish. But the part of the story she misses is that this goal comes with a price: a tax system that is more inadequate over the long run, and one that is even more divorced from ability-to-pay considerations than property taxes normally are.

Here's hoping Florida policymakers check with a few Nevadans before they adopt Arthur's recommendations.