Florida Latest State Proposing Property Tax Cuts for Sales Tax Increase Swap

February 21, 2007

Florida lawmakers are proposing to cut property taxes and increase the sales tax, following the perilous precedent set in Idaho, New Jersey, and South Carolina last year.

House Speaker Marco Rubio unveiled the proposal, which calls for a special election later this year in which voters would be asked to eliminate all property taxes on homestead property — the primary residence on which a person has a homestead exemption.

Taxes would still be paid on vacation or second homes. If voters approve the elimination of the property tax, the state sales tax would be increased to 8.5 percent from 6 percent. That’s aimed at helping local governments absorb the impact of losing property tax revenue.

A 2.5 percentage point increase in the sales tax would be a large tax increase for Floridians, on top of being unwise tax policy. The imprudent tax swap could cost Florida taxpayers in the neighborhood of $4 billion per year-a 12% tax hike.

Sales taxes are easily avoidable and rate hikes disadvantage in-state businesses because of increased border-shopping and internet purchases.

Neighboring Georgia will benefit heavily from increased border-shopping, as its combined state and local rate of 5.1 percent is already below Florida’s 6 percent rate. Alabama, with a state and local combined rate of 6.67 percent, would be below Florida as well if an increase occurred.

Florida will inadvertently be hurting its corporate income and business property taxes additionally, since the increased border-shopping will lead to lower corporate profits and lower property values.

As Gerald Prante pointed out there is no such thing as a free lunch. Be careful taxpayers of Florida, if you get the property tax cuts you’ve been clamoring for you could still ultimately end up with a significant tax hike.

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