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.