State House to ask voters to trade property tax for more sales tax
By Mark Hollis
sun-sentinel.com Tallahassee Bureau
February 21, 2007, 2:43 PM EST
TALLAHASSEE -- Florida House Republican leaders on Wednesday unveiled a proposal to radically redesign the state's tax system in a way that seeks to ease home ownership costs but could drive a deeper financial wedge between the poor and the wealthy across Florida.
The proposal would ask voters to abolish property taxes on homes and put caps on local government spending in exchange for adopting the nation's highest statewide sales tax.
Presently, California has the highest statewide tax at 7.25 percent, including 1 percent that goes to local governments.
A proposed constitutional amendment, if passed by the Legislature, would go to voters later this year or at the 2008 general election. If approved, it would raise Florida's statewide sales tax by 2.5 percentage points, from 6 percent to 8.5 percent.
Critics say the changes would hurt the poor who don't own property or have cheaper housing and could lead to painful budget cuts by city and county governments.
But advocates call it the most dramatic of several proposals yet released in advance of the 2007 legislative session in which Democrats and Republicans agree will focus on meeting last year's campaign pledges to slash property taxes. House Speaker Marco Rubio, R-Miami, outlined the plan, which he other House Republicans predicted will be lauded by home and business owners, much like the praise they've gotten after passing a property insurance relief bill earlier this year.
``We believe this is very, very significant property tax reform,'' said House Budget Chairman Ray Sansom, R-Destin. ``It's exactly what the voters are asking us to do.''
Under the plan, voters would be asked to eliminate all property taxes on homestead property. Homestead properties are primary residences in which a person has a homestead exemption. Taxes will still be paid on vacation or second homes.
Non-homestead properties would see some decline in costs, though, since the amendment would roll back taxing rates - except for school districts - to their 2000-01 levels but allow for population- and inflation-based increases.
School taxes would remain at present levels but future revenues also would be limited according to population growth and inflation.
Proponents said, on average, commercial property owners could save $3,353 on their tax bills annually. The average homeowner would see their taxes go down by $2,283 per house, though the actual amount depends upon a home's current tax value. Landlords and tenants would save an estimated $767 per unit, according to House analysts.
The amendment would need at least a two-thirds vote of support from voters.
``This is going to have to be a really, really good idea that's going to have to stand up to political campaigns (opposed to it) statewide,'' said Rubio.
The state sales tax increase portion of the plan would seek to help local governments contend with the massive revenue losses they would see by losing property tax revenue. That means, though, the poor and others who rent, could see their bills go up because of the sales tax but won't see a direct tax cut because they don't pay property taxes directly, though those costs are typically factored into their rent.
``We must be cautious that we do not shift the tax burden from one group to another,'' said House Democratic Leader Dan Gelber, D-Miami Beach, who offered a cautious response to the Republican plan, also noting that there's high public demand for property tax relief.
Rubio rejected criticisms of how it will impact renters, telling reporters that property tax cuts will make home ownership easier to achieve. He also noted that many basic necessities, such as medicines, don't fall under the sales tax. Rubio also didn't rule out the possibility of the Legislature developing the plan to require landlords from passing their property tax savings through to their tenants.
The tax scheme, which Rubio called ``just a starting point'' for property tax cut talks, is already seeing sharp opposition from a wide array of groups, including advocates for the poor and local government officials concerned about the impacts to the budgets of cities and counties. It's also expected to see opposition from several groups that have been complained loudly about rising property taxes, including out-of-state residents, known as ``snowbirds'', and landlords.
Gov. Charlie Crist, who has outlined his own property tax cut measures, reacted tepidly to the House Republican proposal, making no judgments about it but crediting House Republicans for ``out of the box'' thinking and said that he's ``intrigued'' by it.
Senate Finance and Tax Committee Chairman Mike Haridopolos, who is heading the Senate's tax reform said he also welcomes the House Republican plan but he didn't go so far as to endorse it.
Leaders of Florida TaxWatch, a business-oriented tax study group based in Tallahassee, noted that the plan doesn't do anything to remove the inequities in the state's tax structure caused by the Save Our Homes amendment that caps annual property tax increases for properties with a homestead exemption at 3 percent.
It's also unclear where two primary political groups will stand on the proposal. Business groups who hold considerable sway in the state Capitol and who are typically opposed to any increases in the sales tax could be a factor in the proposal's outcome in the Legislature. Another entity key in determining whether the plan clears the Legislature and reaches voters is the tourism industry. That's because that, in many Florida counties, a third or more of the state's sales tax revenues are derived from out-of-state visitors.
One business lobby gave the idea a tentative thumbs-up Wednesday though cautioned that it still needs more study. Florida Retail Federation President and CEO Rick McAllister said he was pleased by the proposal since it aims to discourage local governments' budgets from growing faster than the rate of inflation.
``Governments shouldn't grow faster than our ability to pay for it,'' McAllister said. ``A legislative limit on property tax revenue, based on the real growth of population and inflation, is a reasonable and balanced solution.''
Part of the plan calls for capping the amount local government tax collections could grow each year unless local elected officials agree by a two-thirds vote of their boards to raise more. But cities and counties have warned that they barely have enough to make their budgets now, and capping how much they can collect could force service cuts.
``The Legislature must avoid creating a second crisis by forcing cuts in essential county programs and services that Florida's citizens depend on,'' said Chris Holley, executive director of the Florida Association of Counties.
``...The House leadership's plan is a top-down solution that disproportionately impacts counties, depending on whether they are urban or rural, coastal or inland.''