Governor Rick Scott Offers Mixed Bag of Tax Proposals for Florida

Governor Rick Scott (R) of Florida has launched a new bus tour as part of his re-election bid, advertising a plan to cut taxes in Florida by $1 billion. The key features of the plan are:

1. A constitutional amendment restricting property tax increases
2. $200 million in new tax holidays
3. A reduction automobile registration fees
4. A reduction local telecommunications service sales taxes
5. Permanent elimination of the sales tax on manufacturing equipment
6. Continued phase-out of the state corporate income tax
7. Elimination of the sales tax on commercial leases

These proposals are a mixed bag. Restrictions on property tax assessments can reduce local taxation, but only if there are also restrictions on property tax rates, effective standardization of tax assessing practices, and strict limits on other local revenue sources. Otherwise, if property taxes are ineffectively capped, localities will just raise the same revenues through less transparent means like excessive fees, fines, or budget gimmicks that just push expenses further out.

Tax holidays are even worse policy. While they may be politically expedient, sales tax holidays just create additional compliance burdens while failing to promote economic growth. Florida was an early-adopter of this distortionary tax policy, taking the practice from more highly-taxed New York in 1998. But a more economically productive course than narrow carve-outs for certain goods would be general sales tax relief. If policymakers believe it is worthwhile to offer $200 million in sales tax relief, a small across-the-board rate reduction could be passed, instead of a special provision for a few advantaged retailers.

That said, Governor Scott’s plan includes some valuable proposals as well. Florida has the 4th highest cell phone taxes in the nation, so tax relief in that sector would bring the Sunshine State closer to national norms. Eliminating sales taxes on business inputs, like commercial leases and manufacturing equipment, is also sound tax policy, because taxes on business inputs create tax pyramiding and significant economic distortions. Finally, moving to reduce or phase out the corporate income tax would follow with a broader trend around the nation. Many states have been experiencing declining corporate tax revenues due to increasing credits and deductions, falling tax rates, and changes in income apportionment formulas. In a competitive national and global environment, state-level corporate income taxes seem increasingly unable to raise sufficient revenues to justify their negative economic impacts.

Governor Scott’s tax proposals offer meaningful improvements in some areas like cell phone and corporate income taxes. But on other issues like the property tax cap, it’s not clear whether or how the plan will work; on sales tax holidays, the proposed “tax cut” would actually make the tax code more complicated and distortionary, while creating little or no economic growth.

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