Miami Herald: Amendment 5 tax swap a math problem

Monday, August 11, 2008

BY MARC CAPUTO
Amendment 5, the major constitutional “tax swap” on the November ballot that would replace school property taxes with other revenues, poses one of the biggest math problems the Florida Legislature will ever have to solve.

If the amendment passes, the numbers will be tough to work out, due to the Legislature’s cloudy fiscal track record and some vague wording in the measure itself.

The amendment calls for the complete elimination of the state-set property tax for schools—25 percent of the average property-owner’s tax bill. To replace the lost money, the amendment says, legislators would have to increase the sales tax by a penny, eliminate some sales-tax exemptions, levy new taxes or even cut the budget.

How much tax revenue will they have to replace? Maybe $9.3 billion. Maybe $11 billion. No one’s quite sure. Though the amendment demands that the Legislature make up the lost education money, it’s unclear how to figure the amount, according to state economists.

The final math will rest with the Legislature—an institution almost universally opposed to the amendment along with virtually every heavy-hitting lobby group in the state.

“All of this would be completely unnecessary if the Legislature had just done its job,” said John McKay, the former Senate president who successfully pushed the proposed amendment through the state Taxation and Budget Reform Commission earlier this year. He wants people to ignore opponents’ “fear” mongering and focus on how the amendment will help improve the real-estate-based economy and reform the system to tax consumption rather than wealth.

“It’s far more important to deal with knowns rather than unknowns,” he said.

QUESTIONS

The unknowns, however, dominate, considering that the amendment calls for:

• A review of some special interest sales-tax exemptions, ranging from car trade-ins to charter-fishing boats to school textbooks and lunches to newspaper advertising. If all those exemptions were eliminated, the state would get an additional $4 billion a year. The amendment prohibits lawmakers from touching another $8 billion in sales-tax exemptions because they cover food, health services and aid for the poor.
• A one-cent increase to the six-cent sales tax. That would probably raise $4 billion in the budget year beginning in July 2010. But whether this will help or hurt the economy is hotly contested.
• More budget cuts. It’s not clear how much is left to trim after lawmakers cut $6 billion over the past year, and more trims are likely to be needed as the economy continues to falter.
• Other unspecified tax increases. These could include legalizing more video-lottery gambling (nearly $1 billion a year), taxes on cigarettes or booze (more than $1 billion), making all corporations in the state pay taxes ($365 million), stocks-and-bonds taxes ($830 million) or up to $23 billion by imposing sales and use taxes on services ranging from haircuts to accounting to limousines.
• A five percent cap on the assessed value increases of non-homesteaded properties. Voters in January approved a first-ever cap of 10 percent. (Owners of primary homes already have a 3 percent yearly cap, known as Save Our Homes.)

CRIST’S STANCE

Raising any tax on a service or product will prove to be a tough slog in the Legislature, though everyone agrees that an income tax, prohibited in the Florida Constitution, won’t be considered. Gov. Charlie Crist, who re-emphasized his support for Amendment 5 last week, said he wouldn’t consider such a tax but won’t say what options he favors.

“Time will tell,” Crist said. He added that people need to approve the amendment by the required 60 percent vote on Nov. 4 before the Legislature takes it up.

Crist has yet to say if he’ll campaign as hard for this plan as he did for his Amendment 1 tax cut in January.

Crist’s support will be key because it’s easier to pass an amendment if it’s identified with a popular politician.

OPPOSITION

But despite the support of the Florida Association of Realtors—which has pledged to spend $1 million to pass Amendment 5—nearly every lobby group in Tallahassee is arrayed against it, from the Florida Hospital Association to the Florida Chamber of Commerce.

A coalition of 23 special interest groups have formed the Coalition to Protect Florida’s economy and are suing to keep the measure off the ballot, saying the ballot language will mislead voters who won’t know what they’re deciding. Leon Circuit Judge John C. Cooper is scheduled to hear the case Wednesday.

Meantime, in traditional town halls and on the Internet, future Senate President Mike Haridopolos is trying to stop Amendment 5. Haridopolos has hired his own economists to argue that the amendment is “the largest tax increase in the history of Florida.”

Haridopolos points out that even though the amendment calls for eliminating the state-set school property tax—estimated at $8.4 billion statewide in 2010-11, when the measure would take effect—legislators are required to make up the entire estimated K-12 spending budget, estimated at $9.3 billion to $11 billion, depending on how it’s calculated. Factor in the loss of property-tax write-offs on income taxes, and Floridians would spend $3.6 billion more on schools than they otherwise would have.

“Only if Floridians want to pay an average of $200 more in taxes should they vote for this,” Haridopolos said. He noted that the state budget commission’s economist projected the amendment could slow the economy, raise prices and cost 53,000 jobs.

McKay, citing his own economist, said the amendment would spur the economy and create jobs. He said the amendment would broaden the tax base and make tourists pay more of the share.

But for how long? The Florida Education Association is opposed to Amendment 5 because the school-revenue replacement is required for only one year. And, the union says, the Legislature has a poor record when it comes to voter initiatives, from spending Lottery money to decreasing class sizes.

State House Democratic leader Dan Gelber of Miami Beach agreed that the big problem with the plan—which he favors in broad concept—is that it ultimately relies on the Legislature.

“I don’t trust the Florida Legislature. There’s a total lack of political courage,” Gelber said. “This pits taxpayers in desperate need of relief against schools in desperate need of resources. And the Legislature has never been willing to close tax loopholes or exemptions, no matter how frivolous.’’