Florida Tax Swap Removed From Ballot

August 18, 2008

Joseph Bishop-Henchman

Joseph Bishop-Henchman

Florida’s tax swap Amendment 5 is off the ballot, at least for now. Judge John Cooper ordered it removed after concluding that the ballot title was misleading and confusing. The initiative’s proponents are now appealing the removal.

We discussed the swap proposal here:

The amendment calls for the Legislature to remove all property taxes levied by school districts by 2010. This would reduce the average property tax bill of a Florida resident by anywhere from 25 to 40 percent.

The amendment states that the lost revenue will be made up in one of three ways: a sales tax increase of 1 cent, spending cuts enacted by the state government, or a repeal of sales tax exemptions on items such as food and religious organizations. While critics argue that the sales tax increase and spending cuts will not completely make up the lost revenue, Crist argues that the lower property tax rates will spur investment and economic growth in the state.

Speculation suggests that this new 7 cent sales tax rate will be extended to cover previously exempted services. For example, funeral services are currently tax exempt in Florida, but if Amendment 5 is passes, a $5,000 funeral service will be hit with a new $350 tax.

As we have stated before, tax swaps are not sound tax policy for three specific reasons. First, local control of schools gets shifted to the state level, harming local autonomy. Second, increasing the sales tax is a more problematic source of revenue and makes the state less competitive in relation to rates found in neighboring states. Third, and most importantly, if the swap means a zero net change in revenue, it won’t actually reduce Floridians’ overall tax burden, as they think it will.

Other Florida posts here:

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A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.

A sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding.