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.

Property Tax Repeal? Jacksonville Sun Advises "Caution"

Reaction to the Florida House Republican leadership's latest property tax "reform" proposal-- repealing all homeowner property taxes-- continues to find a skeptical audience among state media outlets. The Jacksonville Sun's editorial board weighs in on Sunday's op-ed page, and they've got good questions for advocates of repeal:

But how would local governments absorb the lost revenue and how would their tax distributions be sorted out?
Would becoming the highest sales-tax state in the nation discourage tourists or drive business to border states or to the Internet?
What about the hit on the poor from a sales tax increase?

These are all legitimate and well-stated concerns. The most likely answers to these questions are "With difficulty," "Almost certainly," and "The poor will pay more."

The Sun has its own broad recommendations that generally focus more on goals than on strategies:

More fairness: The property tax benefits are tilted too far to those who have been in their homes the longest. Some longtime home-owners pay no property taxes at all.
More balance: Businesses and other nonhomesteaded property owners are getting rocked with higher taxes. Some type of reasonable cap is in order that protects them but allows for moderate growth in tax revenues.
Consideration for local governments: State and federal governments, meanwhile, are shifting costs to the local level. Most governments have room for belt-tightening, but beware of placing one-size-fits-all limitations on local government spending.
More moderation: Officials must be careful not to make fixes that are worse than the problem itself. Officials should phase in changes so that adjustments can be made.
More information: Taxes are complicated. Floridians need as much analysis as possible to understand how any changes would affect them, businesses, local governments, schools and the state overall.

These broad goals are all right on. The question is, when will anyone with a voice in this debate start talking about the forgotten reform option-- enacting a personal income tax?

Tallahassee Democrat Calls for Comprehensive Tax Reform

It's the sort of sentiment that is so obvious, it shouldn't even be notable. But at a time when Florida lawmakers' tax-reform priorities begin and end with the property tax, it's nice to hear a reminder that there's more to it. An editorial in Friday's Tallahassee Democrat cautions against focusing just on the property tax picture:

What's really needed is a comprehensive review of Florida's tax system - not only property taxes, but also the hundreds of sales-tax exemptions totaling multibillions of dollars. That requires strong political will, not just sound bites.

The sales tax, of course, is only one part of the larger picture, and the Democrat doesn't really connect the dots to explain why such a reform should go hand in hand with property tax cuts. [The answer: state lawmakers have made an art form of sloughing off funding responsibilities to local governments, and have used the resulting "surplus" revenue to enact unaffordable tax cuts. So a necessary part of local property tax reform will be reinvigorating state-level taxes, including (but not limited to) the sales tax.]

And it would be nice to hear a word or two about whether reforming the state's loophole-ridden corporate tax or enacting an income tax might be a solid option. But kudos to the Democrat for keeping their eye on the big picture.

"Myths and Facts" About Tax Reform

The Palm Beach Posts's Randy Schultz fires off a salvo at those who are mischaracterizing the Florida tax reform debate--running through a list of tax "myths" and skewering them with a succint explanation of the facts behind the myth-- and hits (mostly) on all cylinders.

Here's my favorite, not least because it's probably the single most important thing to know about this year's debate:

Myth: The government spending problem is all local, and none of it is the Legislature's fault.
Fact: The state regularly pushes costs, such as juvenile justice, onto the counties. And part of what the school district must levy in property taxes is ordered by the state. The share of state money for schools has been shrinking in recent years, while the local share has been growing. That's how the Legislature can claim to be spending more on schools without raising taxes. If the state wanted to help local government, the state would pay its costs, not dump some of them.

Darn right. The state government has enacted unaffordable tax cuts and paid for them by cutting aid to local governments-- basically daring locals to make the unpopular tax hike decisions state lawmakers have fled from. That, in a sentence, is why property tax administrators are feeling state homeowners' ire.

And here is my least favorite:

Myth: Creating a state income tax would solve the problem.
Fact: Voters would have to change the state constitution, and that isn't going to happen. Not that the idea wouldn't improve the system. Under Save Our Homes, the more expensive the house, the more the owner's increased value is sheltered from taxes. An income tax would be fairer than the current property tax system, but Florida will have an income tax when the University of Florida drops football.

There may be a huge political hill to climb before an income tax can be adopted, but that doesn't mean that the income tax solution is a "myth." Rather, that means that the income tax reform is (for lawmakers) an "inconvenient truth," to coin a phrase. Saying a solution isn't politically feasible doesn't make it any less right.

Read the whole op-ed here.

McKay Tapped for Tax Commission: A Good Pick

Governor Bill Crist has made his appointments to the state's Taxation and Budget Reform Commission. Crist's 11 nominees to the commission (the legislature has already appointed 18 members) include one especially notable former lawmaker: John McKay, who as a state senator pushed hard for unpopular but necessary reforms in the state's sales tax.

The Commission is not the result of yet another vague legislative call for "further study" of tax issues-- it was actually created through a constitutional amendment in 1988. Every 20 years, the commission meets to discuss and recommend needed changes to Florida's tax and budget system. The commission can't enact any changes, although it can recommend constitutional ballot changes to voters. The Tampa Tribune's Catherine Dolinski has more on the creation of the Commission-- and what to expect from its deliberations this year-- here.

A skeptic might see the Commission is offering political cover for lawmakers who don't want to make tough choices. And there's probably some truth to this criticism. But if it takes an unelected commission to recommend the difficult choices that elected officials don't have the guts to make on their own, well, that's better than complete inaction. Let's hope lawmakers can at least find the courage to follow up on the Commission's recommendations.

St. Pete Times Ed Board: "Aim For Tax Fairness"

In yesterday's St. Petersburg Times, the editorial board takes aim at pretty much every major property tax reform proposal out there-- and finds them all wanting.

Doubling the $25,000 homestead exemption, as Governor Bill Crist has suggested? Inequitable.
Expanding the "Save Our Homes" property tax cap? Also inequitable.
Capping local revenue growth? Hurts local governments.

The Times' diagnosis on each of these points is absolutely right. And they correctly point the finger at state government, not local governments, as the main culprit in Florida's unfair tax system. The editorial's headline, "Aim For Tax Fairness," gives one hope that the Times ed board might come up with some real suggestions for reforming the state's tax system. And they do mention one state revenue-raising option-- expanding the sales tax base to include more services.

But there's so much more to talk about. The single most obvious option for making Florida's tax system more sustainable and less unfair-- enacting a personal income tax-- is mentioned nowhere here. Nor is there a word spoken about eliminating the variety of loopholes in Florida's corporate income tax.

These options may not be politically realistic right now-- but the whole point of the Times editorial is that the "realistic" options being thrown around by Florida lawmakers right now are simply inadequate to the task at hand. It's the job of folks like the Times editorial board to discuss what's best for the state-- not just what's immediately feasible.

"Unfair to Everyone:" Evaluating the Save our Homes Tax Break

The Florida Senate Finance Committee is deliberating this week on property tax reform options-- and opponents of the ill-starred "Save Our Homes" tax cap aren't pulling their punches.

It's "unfair to everyone," Volusia County Property Appraiser Morgan Gilreath told the committee. "It doesn't matter if you're a homeowner. You're discriminated against from when you buy your home. If you come in from another state, you're only equal to someone who comes into the state the same day you did."When you become a Florida citizen, you're not as good as the people who moved here last year, and they're not as good as the people who moved here the year before, and they're all better than the people who are coming," he added.

The big question facing lawmakers this year on "Save Our Homes" is a simple one: reform or repeal? Only too often, lawmakers address problematic taxes not through well-tailored reforms but through outright repeal: witness what the federal government has done with the estate tax (not to mention what Florida did last year with its intangible property tax). So it's a responsible first step, I suppose, to think about ways in which "Save our Homes" can be modified without outright repeal.

But in the case, the angels may not be on the "reform" side at all. What's being "reformed" here isn't a tax-- it's a tax break. A big, fat, unaffordable, poorly targeted tax break. We know from national experience that there are better-targeted ways of achieving meaningful property tax reform, most notably the "circuit breaker" credits that are now in vogue nationwide. So you can make a case that outright repeal is a pretty sensible option for dealing with the Save our Homes fiasco.

Don't Shoot the Tax Assessor

Palm Beach County property tax appraiser Gary Nikolits has been under fire for months for his insistence on ensuring that properties in the county are assessed at their actual value. This is in response to pressure from local elected officials to artificially lowball the assessed values assigned to homes and businesses.

He's right, of course: when assessors lowball properties' value, it makes the tax unambiguously less fair, no matter whether the preferential assessments are being given as special favors or as a general practice. This isn't to belittle the (very real) concerns of homeowners and businesses that rapidly growing assessed values will force them to sell. But anyone (including opportunistic anti-tax legislators) putting the blame on assessors is simply wrong. A new editorial in the Palm Beach Post hits this one dead on:

Commissioners have no business telling him how to do his job. They hope that criticism of Mr. Nikolits will make taxpayers forget that the commission controls taxes, because it controls the tax rate.

Not everything is pure politics, of course: it's possible that the aggressive stance elected officials are taking against Nikolits' assessments has nothing to do with scoring political points and everything to do with helping their constituents to avoid excessive property taxes. But even if their intentions are pure, the county commissioners have chosen a lousy way to achieve tax relief. Here's the Post editorial board again:

Commissioners are wrong, however, when they encourage an appraiser to ease up on a select group of property owners. As Mr. Nikolits correctly points out, such an approach could create enormous inequities in assessments and decimate the overall tax base. Manipulating appraisals for political ends can lead to other problems. Then-Gov. Bob Graham removed David Reid as Palm Beach County property appraiser in 1981. A year later, Reid was convicted of lowering assessments in return for bribes.

Manipulating property values, even in the name of providing property tax "relief," can only undermine the public's faith in the tax system in the long run. You'd be hard pressed to find anyone claiming that the property tax is Florida's fairest revenue sources these days. But you can't take even baby steps toward a fair and equitable property tax until you value property at its true worth. Kudos to Gary Nikolits for standing up to the demagogues on this point.