Multiple-Choice Tax Proposal in Florida

July 22, 2008

The Florida Taxation and Budget Reform Committee placed an amendment on the upcoming ballot to eliminate the school portion of local property tax. According to one estimate, property owners would save $9.3 billion in 2011. But as the Jacksonville Business Journal reports, not everyone is happy about the measure.

If passed, that part of the amendment would create a shortfall in the state budget. As a result, the proposal also calls for Florida lawmakers to make up the difference through one or more of four options:

• Raise the state sales tax by a penny.

• Eliminate state sales tax exemptions on a host of services such as legal fees, dry cleaning, advertising and haircuts.

• Cut spending.

• Use new or other revenue.

Of the four options, (2) and (3) are preferred. There is no reason for states to favor some transactions over others. This just distorts the price system and causes markets to work less efficiently. And I am sure Florida can trim some fat in the spending area (perhaps from the Department of Citrus?).

Option (4), on the other hand, is the scariest. I have no idea what new or other sources of revenue the fine legislators in Florida might be considering, but I doubt they have sound tax policy in mind.

So is this amendment good, bad, or ugly? Your guess is as good as mine. It really depends on how they counteract the cut. At present, the best we get is a pick-four situation: eeny, meeny, miny, mo.

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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 tax exemption excludes certain income, revenue, or even taxpayers from tax altogether. For example, nonprofits that fulfill certain requirements are granted tax-exempt status by the IRS, preventing them from having to pay income tax.