“In the middle of difficulty lies opportunity”….Albert Einstein

Once again Florida faces a gap – this one estimated at $3.5 billion – between anticipated revenue and the costs of continuing current state services – MOST OF WHICH HAVE ALREADY BEEN CUT OVER THE PAST SEVERAL YEARS.

Since 2007, the legislature has taken a series of actions to balance the budget in response to the recession:

Budget Gaps Have Been Closed With Short-Term Fixes

• Cuts to services depended upon by Floridians

• cutting programs such as K-12 education, universities and state colleges, Healthy Start, and community care for the elderly

• shifting more of the costs of public schools to local school districts and local taxpayers

• not providing the final $350 million needed to complete implementation of the 2002 class-size reduction constitutional amendment

• relying on billions of dollars in federal Recovery Act funds

• raising tuition

New fees and taxes that hit middle-and low-income Floridians disproportionately:

• increasing a variety of motor vehicle and court fees • hiking the tax on cigarettes and other tobacco products• expanding gambling

Spending down the state’s emergency fund - the Budget Stabilization Fund

Sweeping money from state trust funds and using it for purposes other than the specific uses for which they were created

Additional Cuts Hurt All of Florida• They will come on top of billions of dollars cut previously

• Further harm the growing number of Floridians forced to rely on state services to get by during hard times:

-- more than a million unemployed, only 15 states had higher poverty rates in 2009, second highest rate of uninsured

• All Floridians benefit from good public schools and colleges, decent roads,

protection from crime, and other publicly funded services necessary for a good standard of living

• Less state spending will reduce the flow of federal money into the Florida economy if state matching funds do not maximize potential federal revenue -- our tax dollars gone to Washington

Pac-Man of the Budget or Powerful Economic Engine??

• Proposals to cut $800 million from the current Medicaid budget would cost $1.5 billion in federal matching funds, an estimated 14,000 jobs and an estimated $600 million in lost wages.

• On the other hand, under health care reform an average annual investment of $200 million in state funding (including not only GR, but all other sources) translates to $26.6 billion in total economic impact over 6 years, a more than twentyfold return on investment

State Government Has Responsibilities to Provide Services Under the Constitution and Laws

• education for more than 3.7 million students in public schools and publicly funded prekindergarten, and in state universities and colleges, and more than 400,000 teachers, faculty, and staff

• health services for about 3 million low-income children and adults in the Medicaid program and for other services to children and families

• the costs for 100,000 prisoners in state prisons, including correctional officers and staff

• substance abuse and mental health services for more than 450,000

• road and highway construction • other services necessary for a well-ordered

society: -- juvenile justice, environmental protection,

state parks, wildlife conservation, agricultural services, regulation of businesses, state law enforcement, and state courts

What’s a Legislature to do?Dig the hole deeper?

IT’S ABOUT CHOICES

• Florida is not a revenue-poor state, but we do have a poor and unfair way of collecting revenue because of choices made since our tax system was created in 1949 before we were the 4th largest state in the country, relying on a service economy.

Since enactment, Florida’s sales tax rate and/or base has been changed to some degree in nearly every legislative session.

To Fund Necessary Services, Florida Relies on a Flawed Tax System

• Second-worst in the nation in terms of fairness, relying on the very regressive sales tax more than any other state

• Asking our poorest, non-elderly residents (those in the bottom 20% of the income scale) to pay up to six times as much of their income in taxes as do the wealthiest (top 1%). Middle income (middle 60%) pay up to three times as high a share of income. Institute on Taxation and Economic Policy 2009

• one of 9 states with no state income tax – prohibited in constitution

• Over the last decade state and federal elected officials have subtracted $12 billion from the revenue available to meet the needs of the state -- repeal of the intangibles tax and the estate tax -- both taxes on wealth that made our tax structure less regressive

•New tax breaks every year -- making the sales tax more regressive

Tax Structure Was Made More Unfair in 2009

• Regressive fees and taxes imposed by the legislature in 2009 cost Floridians about $2 billion each year – the same amount no longer being collected each year from the intangibles and estate wealth taxes

• $1 billion raised from higher fees on motor vehicle licenses and registration, drivers licenses, vehicle titles

• $1 billion raised from higher tobacco taxes

“Smart Caps,” AKA TABOR – (Taxpayer Bill of Rights)

• New proposals offered over the past several years and a major priority of the Senate President is the problematic constitutional amendment enacted in Colorado a decade ago known as TABOR.

• Well-funded anti-government groups have pushed TABOR in over 30 states since 2005. But every time they have failed.

TABOR is a revenue and spending limit

• Included are the following three elements:• It is a constitutional amendment,• It restricts revenue and expenditure growth

to the sum of population change plus inflation, and

• It requires voter approval to override the revenue and spending limits

TABOR or Smart Caps

• May sound like a good idea but, TABOR does not factor the existing or growing needs of a state’s residents. In an era in which health care costs are growing far faster than inflation and populations are aging, limiting the rate of spending growth to inflation plus population growth forces annual reductions in the level of government services. And it locks a formula in the Constitution making it near impossible to adjust.

Not Attempted by the Legislature:Tax Modernization and Reform

•

•Since 1998, the legislature has enacted almost 100 exclusions, exemptions, deductions, and credits to the state sales tax; others have been in place since the tax system was created in 1949. There is no systematic regular review of existing exemptions, exclusions, subsidies, credits.

Some exemptions make sense – food, medicine, healthcare, rent…

OTHERS???• $42 million annually for newspaper and magazine inserts, • $42 million for still bottled water, • $11 million to Charter fishing boats, • $78 million to boats or airplanes removed from the state,• $24 million in subsidies to Florida professional sports

teams, the Professional Golf Hall of Fame, the International Game Fish Association World Center,

• $3.8 million on boats temporarily docked,• $32.6 million on feed for livestock, poultry, race horses

and ostriches

TAX BREAKS = BUDGET EXPENDITURES

• In total, $10.4 billion in annual breaks on the sales tax

• Another $20.4 billion in services are not subject to the sales tax because services are excluded from the tax code

Corporate Income Tax Loopholes

• Exemptions for specific types of corporations (limited liability companies and Chapter S corporations) cost the state about $1.1 billion each year. Since Florida does not have an individual income tax, these companies fully escape taxation of their profits. All but one other state without an individual income tax require LLCs and Subchapter S Corporations to file and pay corporate income tax.

• About $100 million annually is lost through deductions and credits for corporations;•Another $400 million is lost because Florida doesn’t require combined reporting – multi-state corporations not paying corporate tax on profits made in the state;

• $140 million in corporate taxes will fund vouchers for private schools

• A 2003 Florida Senate report found that the state lost $250 million to $500 million each year from the corporate income tax because of “tax avoidance behavior” by corporations

Another Modernization Possibility:Streamlined Sales Tax Project

Florida loses an estimated $2 billion each year in legally owed sales taxes not paid by purchasers using the internet

Bricks-and-mortar stores are placed at a competitive disadvantage

Unemployment Insurance Modernization

Maximize federal funding -- $444 million available in federal funds for benefits to those who’ve lost jobs but unable to access Florida’s outdated employment system;

Florida has the third-lowest recipiency rate in unemployment benefits

Modernizing our Tax System Would:

• match the tax structure to the modern economy

• broaden the base of taxation to keep tax rates and fees as low as possible, providing more balance and stability

• reduce the tax burden on those least able to pay by asking everyone to pay their fair share

• provide adequate revenue for vital state services

Brains, Heart, Courage

Dr. Martin Luther King, Jr.

“Human progress is neither automatic nor inevitable…every step toward the goal of justice requires sacrifice, suffering, and struggle; the tireless exertions and passionate concern of dedicated individuals..this is no time for apathy or complacency, this is a time for vigorous and positive action.”

Presented by: Karen Woodall, Florida Center for Fiscal & Economic Policy/Coalition for Fair and Comprehensive Tax Reform www.fcfep.org, fcfep@yahoo.com