Debate continues on Scott plan to end Florida corporate tax

Jun 12, 2011

The following article was published in the Tampa Bay Tribune on June 12, 2011:

Debate continues on Scott plan to end Florida tax

By Bill Kaczor

Voters let Florida tax corporate income in 1971 after their new governor stumped the state with a pair of Sears shirts, one bought in the state and the other in neighboring Georgia, which already had that tax.

Then-Gov. Reubin Askew, a Democrat, pointed out the Georgia shirt cost slightly less as he argued against claims that companies would simply raise their prices to pass the tax on to consumers.

Now, another new governor, Republican Rick Scott, wants to phase out Florida’s corporate income tax, saying it would create jobs and boost the economy.

“If you don’t fix the economy in the state, then you are going to have less money for important things like education,” said Scott spokesman Lane Wright. “As our economy improves, the more money we’ll have to take care of them.”

But his opponents are using some of the same arguments Askew did 40 years ago to support their contention that repealing the corporate tax would have little or no effect on jobs but would hurt the state’s long-term economy.

“It would make Florida’s tax system even less fair and reduce the amount of money available for investing in infrastructure,” said Alan Stonecipher, an analyst with the Florida Center for Fiscal and Economic Policy, a liberal think tank based in Tallahassee. Stonecipher said states that do well economically generally are those that invest in schools, universities, vocational training, roads, bridges and even water and sewer.

The state’s corporate income tax is 5.5 percent, generating about $2 billion annually — approximately 9 percent of the state’s general revenue and second only to sales taxes, which generate about $17 billion. The state has no personal income tax. General revenue accounts for about a third of Florida’s $69.1 billion budget and pays for most of the state’s operating expenses including education, prisons, courts and health and human services.

Only about 30,000 mostly large corporations — less than 1 percent of Florida’s business entities — are taxed. That number is expected to be halved to about 15,000 by a bill (HB 7185) awaiting Scott’s signature. It will increase the amount exempted from the tax from the first $5,000 of instate net income to $25,000 — that will cost the state about $30 million. The average corporation that pays the tax will save $1,100.

As a first step toward repeal, Scott proposed cutting the tax rate to 3 percent this year. Lawmakers, who were facing a potential $3.7 billion budget deficit, balked at the $458 million price tag. As a compromise, the exemption bill was passed — but Scott promises to push the issue again next year.

Scott, a former corporate CEO, campaigned last year on a platform of creating 700,000 new jobs in seven years. Those would be above the 1 million jobs expected to be added even if the state does nothing as Florida’s economy recovers from the Great Recession. It left the state with one of the nation’s highest unemployment rates — 10.8 percent in April.

He says eliminating the corporate income tax is an important part of his job-generation plan by making the state friendlier to business.

But in a recent report, Stonecipher’s organization contended repealing the tax would do little, if anything, to improve Florida’s business climate, already ranked as one of the nation’s best.

The report cited Askew’s shirt example to argue the repeal also would be unfair because it would force low- and moderate-income Floridians to pay a larger share of state government expenses while giving tax breaks to wealthy corporations.

Askew had concluded that by charging essentially the same price everywhere, multistate corporations made a greater profit from their customers in Florida than in states where they then paid corporate income taxes. Askew’s plan won overwhelmingly with 70 percent of the vote and the Legislature enacted the tax.

Through an aide at Florida State University’s Askew School of Public Administration and Policy, the former governor declined comment on Scott’s proposed repeal.

Scott’s spokesman dismissed the shirt argument as “too simple.”

“We’re not talking about the price of goods and services by giving the companies tax relief,” Wright said. “Having no corporate tax in Florida would provide an incentive to businesses to do more business in Florida.”

But that may not work. Jacksonville-based rail giant CSX, one of the largest corporations headquartered in Florida, wouldn’t use its savings to expand in the state, acknowledged company spokesman Gary Sease.

“Our investment plans are set in Florida and the repeal would not make a difference in those established plans,” Sease wrote in an email. Still, he said, CSX supports the repeal because it “could further expansion among our customers.”

The Center on Budget and Policy Priorities, another liberal think tank based in Washington, D.C., said in a report last year that repealing state corporate income taxes would have little effect on job creation for another reason — they represent a very small part of a company’s overall costs.

The center cited an Ernst & Young study showing corporate income taxes made up less that 19 percent of overall state and local business taxes in any state in 2009. Florida’s corporate tax, already one of the nation’s lowest, accounted for only 5.3 percent of overall businesses taxes in the state.

The center also estimated state and local taxes on average represent only 2 percent to 3 percent of a corporation’s total expenses. The estimate is based on state and local tax deductions corporations take on their federal income tax returns.

“Florida’s corporate tax rate is not much,” conceded Mike Meidel, Pinellas County’s economic development director, although he supports repeal. “Every little bit helps.”

Meidel’s support, though, comes with a caveat shared by many in the economic development field.

“If it comes on the back of education, it’s a false choice,” said Frank Nero, president of The Beacon Council, Miami-Dade County’s public-private economic development partnership. “You can’t create knowledge-based industries without the knowledge.”

In floor debate on the exemption bill, Rep. Michelle Rehwinkle-Vasilina, D-Tallahassee, argued that cutting the corporate tax is the wrong approach because various business tax breaks already passed over the last 16 years haven’t created many jobs.

“We need to pay for good universities, pay for good education,” she said. “We need to pay for good services and that’s what will bring people into this state to make it competitive.”

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