Florida Income Tax Controversy One

Florida Income Tax Controversy

One potential new revenue source, common in most states, remains unthinkable and unmentionable in Florida:

personal income tax."

State income tax unthinkable," 2007)

In Florida

Floridians confirmed their aversion to a state income tax in 1924, when voters voted "No" to the concept and banned the prospect of having a personal income tax through an amendment to the state constitution. ("State income tax unthinkable," 2007) Today, the State of Florida.com Web site (2002-2004) pointedly proclaims: "Major taxes collected in Florida include sales and use tax, intangible tax and corporate income taxes....There is no personal income tax in Florida." In light of current controversies regarding Florida's claim to "No income tax...," as well as the question: "Should the state of Florida adopt income tax?," this midterm paper focuses on a number of options contributing to answers to that particular question. Along with exploring the subject of Florida adopting a personal income tax, per se, this researcher also examines several (Archibald & Feldman, 2006) economic implications regarding the social costs and benefits of Florida's legislative and fiscal policies.

Balanced Tax System

The concept of a balanced tax system, Bell, et al. (2005) explain, has stimulated discussions and debates for decades. The traditional view purports that state and local tax systems "should collect 20- 30% of government revenue from the three major taxes -- income, sales, and property." This belief evolves from the perception that each of these taxes processes particular strengths and weaknesses, while they also differ in fairness, stability, and efficiency. The theory purported that government should not rely extensively on any one particular revenue resource. Hence, the contention, by some individuals, that Florida needs to adopt a state income tax. Today, however, despite attempts by some in the past to promote Florida's adoption of a state income tax, almost 75 years after the defining "No" vote in 1924, Florida, as one of seven states not employing a personal income tax, continues to be a tax haven for its residents. The other six states siding with Florida include Alaska, Nevada, South Dakota, Texas, Washington and Wyoming. ("State income tax unthinkable," 2007; "Looking for a Tax-Free," 2008, p. A10) on the eve of World War II, Florida was the least populous state in the U.S. Inhabitants were predominantly white, southern-born, and Protestant. By 2006, Florida had grown to be the home of the fourth largest population in the nation. Florida contends that the highest percentage of men and women over sixty-five live within its boundaries; that most of these individuals moved from the northeast or Midwest to retire or spend the winter there. (Achenbaum, 2006) Stakes relating to contemporary concerns regarding Florida's lack of a personal income tax prove particularly potent, and relate to the state's growth, according to Longino and Crown. (1989; cited by Conway and Rork, 2006) in part, due to the fact Florida does not have a personal income tax, researchers argue, Florida reported "a net gain of $5 billion in income from elderly migrants it received between 1985 and 1999...."

Sastry (1992, p. 73 cited by Conway and Rork, 2006) contends that every 2.5 elderly migrants Florida gains creates one new job.

Income Tax Considerations

The hardest thing in the world to understand is the income tax."

Albert Einstein (Quotations, 2006).

Perks Accompany the Lack of a Personal Income Tax

Recognizing that significant perks accompany the lack of a personal income tax in Florida, Mississippi, along with a number of other states "have repealed all income taxes on pension income or made other changes to their tax systems in an attempt to become retirement havens." (Mackey and Carter, 1994; cited by Conway and Rork, 2006)

Since 1976, more than 30 states eliminated their incremental EIG taxes rely solely on the "pick-up" tax instead. Some researchers and practitioners hypothesize a number of elderly individuals may move to Florida to avoid paying "death" taxes, such as those imposed on an estate, inheritance and gift, or EIG taxes.

Still other research casts doubt on this particular view, albeit that the elderly react to state EIG tax policies in making their migration decisions. In fact, when Conway and Rork (2006) used two separate analyses, they discovered evidence that the causality may run the other direction. States that experience elevated elderly in-migration may, contrary to much research, may more likely be to subsequently reduce or eliminate incremental EIG taxes.

Prior research results on elderly migration, albeit, based on cross-sectional data may be misleading as numerous historical net-importers of the elderly states also initially reduced or eliminated their EIG taxes. In their study, Conway and Rork, (2006) utilizes time variability in migration patterns and EIG tax policies and use the young as a "control" group two, in turn eliminate evidence that EIG policies affect elderly migration. Their study, rather than results usually retrieved studies based on cross-sectional data, proffers evidence that the causality may run in the other direction. In regard to the personal income tax controversy, Florida ran the opposite direction of most states. For Florida, this researcher contends, that direction proves to be the right way.

The Tax Revolt During the recount of their exploration of the link between state higher education effort and the tax revolt that started in the 1970s, Archibald & Feldman (2006) note that numerous individuals who distrusted legislatures initiated the tax revolt. They were reportedly gravely concerned with the government's growth at all levels, however, primarily distressed with the state government's growth. "The basic strategy of the tax revolt was to put hard limitations on the growth of state tax revenues or direct limits on spending growth." (Ibid.) the Tax and Expenditure Limitation (TEL), the primary legal change that resulted from the tax revolt, limits the growth of state revenue or expenditures to some outside indicator, generally the growth of state personal income. Twenty three states adopted a TEL starting in the late 1970s. A number of states also added supermajority requirements (SMRs), typically two-thirds, for the legislature to approve tax increases, however, this transpired more slowly and less frequently. Currently, thirteen states have an SMR. (Archibald & Feldman, 2006)

Chronology of EIG Tax Elimination

Conway and Rork (2006) present the following table (1) portraying the chronology of EIG tax elimination, initially initiated by some individuals supporting the tax revolt, along with state net in-migration rates.

Table 1: Chronology of EIG Tax Elimination and State Net in-Migration Rates

NET in-MIGRATION RATES

Year of State

Elimination

Alabama prior to 1960

Arkansas prior to 1960

Florida prior to 1960

Georgia prior to 1960

Nevada prior to 1960

New Mexico

Utah

North Dakota

Arizona (a)

Colorado

Vermont

Virginia

Missouri

Washington

California

Illinois

Wyoming

Texas

West Virginia

Minnesota

Maine

Oregon

Idaho

Rhode Island

South Carolina

Wisconsin

Michigan

Massachusetts

Kansas (b)

Delaware

North Carolina

Mississippi

New York

Montana

South Dakota

New Hampshire

Louisiana

Connecticut

Indiana still

Iowa still

Kentucky still

Maryland still

Nebraska still

New Jersey still

Ohio still

Oklahoma still

Pennsylvania still

Tennessee still

Bell, et al. (2005) report that scholars currently explore the effect of quality of life factors on economic growth, along with ways taxes impact growth factors, more than in the past.

Lifestyle amenities, including schools, parks, arts, and climate, have been found to positively affect development and growth, especially for industries using highly skilled labor. Perhaps most importantly for purposes of this report, there are hundreds of articles exploring the role of the public sector on economic development. This much is known. If the level of spending and quality of public services are held constant, increases in taxes negatively affect employment and economic activity. If the level of taxes are held constant, increases in public services positively affects employment and economic activity. Both of these effects have a much larger effect on the competitive advantage of municipalities relative to one another within a metropolitan area than they do on the competitive advantage of a metropolitan area relative to other metropolitan areas. (Bell, et al. 2005, p. i)

Alternatives to Florida adopting a state income tax include as a way to reduce Florida's rapidly rising property taxes includes increasing the state sales tax. Another way to lower tax bills for other individuals could be to raise property taxes for homeowners. Ray Sansom (R - Destin) House Policy and Budget Committee Chairman, regards the income tax as a terrible way to tax society. Referring to Floridians, he contends, "We would never consider something like that. That would be the last thing. it's sort of over our dead bodies." ("State income tax unthinkable," 2007) Sansom reported that House Republicans never even considered income tax when they developed their tax-swap proposal. In exchange for abolishing property tax on primary homes, known as homesteads, this increases 6% statewide sales tax to as high as 8.5%, consequently qualifying it has highest statewide sales tax in the U.S. Senate Democrats also reported they never considered an income tax when they designed their proposal to increase property taxes on homesteads, previously limited to increases totaling no more than 3% a year, as means to lower taxes on businesses, second homes and other properties. Later, however Democratic leaders approved a bipartisan plan, minus the homestead tax increase. ("State income tax unthinkable," 2007)

Income Tax Proponents, Opponents and Components Income tax proponents argue that even with Florida's exemptions for food and medicine, poorer people pay a higher percentage of their income in the form of sales tax than wealthier citizens. They argue that an income tax would prove to be fairer as sales tax is regressive. These individuals to support Florida adopting an income tax insist that this method of taxation, unlike the sales tax, could be adjusted to shift the burden to individuals who can afford to pay more than those who are poorer. ("State income tax unthinkable," 2007) Iris Lav, the center's deputy director, nevertheless insists that the probability of anyone persuading Floridians that they need to adopt an income tax, equates to: "a little bit of 'If fishes could fly'."

Dominic Calabro, president of Florida TaxWatch, a budgetary watchdog group, primarily supported by business interests, points out that Florida's income tax ban constitutes part of their state's enticing allure; that it serves as "kind of the social contract." ("State income tax unthinkable," 2007) Politicians perceived Florida's ban on income tax, which was adopted to encourage the state's growth in 1924 as one vital way to attract wealthy people and facilitate potential investments in Florida while other states started to tax incomes. Martha Barnett, a Tallahassee lawyer, and also a member of Taxation and Budget Reform Commission stated: "... Florida is very different. It wasn't designed to get snowbirds here, but there are people today who move to Florida and change their residency, usually people in the latter part of their life, because we have no personal income tax." ("State income tax unthinkable," 2007) Initially, when Floridians adopted the income tax ban, the law also prohibited the state from collecting a corporate income tax.

During 1971, then Governor Reubin Askew campaigned and successfully convinced voters to amend Florida's State constitution so corporations would have to pay their "fair share" of Florida's government. ("State income tax unthinkable," 2007) When Barnett served on the first Taxation and Budget Reform Commission during 1990-92, she proposed that Florida remove the personal income tax prohibition. When Barnett served as a member of the Constitution Revision Commission in 1997-98, she once proposed this unpopular taxation move. She did not necessarily want an income tax, Barnett stated, but felt the Legislature ought to reserve the option. "Both commissions resoundingly rejected the idea." ("State income tax unthinkable," 2007) D'Alemberte, also an individual who contends Floridians need to again consider the option of adopting the income tax, as well as a former American Bar Association president and chairman of the Constitution Revision Commission, reports he will encourage the tax commission to discuss the income taxes' pros and cons.

Even if the panel does not do anything else on the income tax issue, he contends, something needs to be done to ensure that it is made known that it is a viable option. "I don't know how we really can have a preliminary discussion about tax policy without at least putting that system of taxation on the table," D'Alemberte said. ("State income tax unthinkable," 2007)

In response to the 2006 Florida Government Accountability Act, consistent with Florida TaxWatch, Florida state legislatures imposed substantive and procedural modifications to reportedly increase effectiveness, efficiency, and accountability among agencies, boards, and commissions. To produce good decisions for Florida taxpayers, this enhanced legislative understanding of agency needs and activities reportedly proved to be a valuable byproduct of the act. Florida Tax Watch warns that good intentions, such as those which led to the 1994 Ac passing, must be enhanced by the link of a sustained commitment of time, interest, and consequential actions on the part of legislators. ("Making Florida's Latest Government," 2006)

Contrary to D'Alemberte and Barnett, Sansom argues that compared to income tax, taxing sales proves to be a fairer scenario, "People who spend less pay less and vice versa, they reason." ("State income tax unthinkable," 2007) Sansom insists.

In response to the study Dr. Thomas R. Dye, (cited by Sepp, 2008) President of the Lincoln Center and a recognized expert in the field of state public finance conducted for NTUF, John Berthoud, NTUF President, stated: "Floridians now have more than ninety-nine thousand reasons to fear adoption of a state income tax."

Berthoud concludes that when a state implements a state income tax, lost opportunities to provide for a person's comfortable retirement, to save for his/her children's education, and to reap benefits of their own hard work compounds the loss of an individual's personal income. "The only thing that gains from an income tax is big government." (Sepp, 2008) the evidence clearly reveals, Berthoud purports, that an income tax in Florida would basically fuel government, while stalling Florida's economy.

Dye, a former McKenzie Professor of Government at Florida State University, utilized econometric modeling to analyze the impact of an income tax in the nine states that most recently adopted one. He then applied these results to Florida, presuming an income tax were adopted in Florida, beginning in the year 2000. The following points denote findings Dye relates: (Sepp, 2008)

From 2000-2010, Florida government would increase spending by a cumulative total of $81.4 billion (in inflation-adjusted 1998 dollars). By 2020, the cumulative total would reach a whopping $311.0 billion.

On a per capita basis, annual state spending would be $1,511 higher for each Florida resident by the year 2020 (in 1998 dollars).

Meanwhile, from 2000-2010, Florida citizens would lose a total of $509.5 billion in personal income (in constant dollars) due to the negative economic effects of an income tax. That cumulative figure would reach an astounding $1.95 trillion by the year 2020.

The per-capita income loss between 2000 and 2020 would add up to $99,243 (in 1998 dollars) because of a state income tax. (Sepp, 2008)

Dye found that in seven of the nine states which adopted a personal income tax since 1967, Connecticut, Illinois, Maine, Michigan, Nebraska, New Jersey, Ohio, Pennsylvania, and Rhode Island, even adjusting for inflation, the state government's spending significantly increased faster after the state adoption of an income tax than is had grown in the 2-4 decades in addition, during the same period, growth rates of personal income in six of the nine states slowed after the states adopted the income tax vs. The time prior to the income tax adoption. No Other Answer... Sepp (2008) argues that if Florida adopted a personal income tax, it would in turn, "bloat the state's budget and sink the state's economy, according to an exhaustive economic analysis released today by the non-partisan National Taxpayers Union Foundation (NTUF) and the Florida-based Lincoln Center for Public Service." If a tax such as an income tax was approved and took effect in 2009, by the year 2020, every Florida resident could possibly lose the equivalent of almost one hundred thousand dollars of his/her personal income. This researcher contends that the response to the question: "Should the state of Florida adopt income tax?," merits an unequivocal: "No." From researched information presented in this midterm paper which examined contentions contributing to the controversy of Florida adopting a personal income tax, per se, along with the exploring a number of economic implications relating social costs and benefits of Florida's legislative and fiscal policies, no other answer than "No" works.

References www.questia.com/PM.qst?a=o&d=5017547397

Achenbaum, W.A. (2006). Land of Sunshine, State of Dreams: A Social History of Modem Florida. Journal of Social History, 40(1), 262+. Retrieved October 10, 2008, from Questia database: http://www.questia.com/PM.qst?a=o&d=5017547397.

A www.questia.com/PM.qst?a=o&d=5016653967

Archibald, R.B., & Feldman, DH (2006). State Higher Education Spending and the Tax Revolt. Journal of Higher Education, 77(4), 618+. Retrieved October 10, 2008, from Questia database: http://www.questia.com/PM.qst?a=o&d=5016653967.

Bell, Michael, Brunori, David, Green, Richard, Wolman, Hal, Cordes, Joe, and Qadir, Tanya. (2005, August). "GWIPP WORKING PAPER SERIES State and Local Fiscal Policy and Economic Growth and Development." Working Paper Number 26. The George Washington University. Retrieved October 10, 2008, at http://www.gwu.edu/~gwipp/papers/wp026.