Florida Senate President McKay launches tax reform effort

Associated Press
Published Tuesday, December 18, 2001

TALLAHASSEE -- Taking on the business establishment and skeptics in his own Republican party, Senate President John McKay laid out a plan Monday to overhaul Florida's tax code to eliminate billions in exemptions.

McKay's plan would lower the sales tax from 6 percent to 4 percent. It would make up the money by ending a myriad of loopholes and exemptions that he says are outdated and make state government too reliant on sales taxes paid by tourists who come in fewer numbers and spend less when the economy slumps.

"I've long believed this was necessary," said McKay, a Bradenton Republican. "However, the events of Sept. 11 highlighted an over-dependence on the tourism industry."

Lawmakers earlier this month cut $1 billion from the state budget to bring it in line with a stagnant economy that was hurt even worse by a post-terrorism drop in visitors.

With no income tax, Florida relies on sales taxes for nearly 75 percent of its basic state budget.

McKay said Florida will collect about $17 billion in sales taxes next year, but exempt about $23 billion worth of goods and services.

McKay's plan is for lawmakers to take the issue to the voters, putting a constitutional amendment on the ballot next November, with the change going into effect in 2004.

The Legislature would work out which exemptions -- now ranging from farm animal feed to services such as hair cuts, legal fees and dry cleaning -- would be eliminated.

Essentials, such as groceries and health care, would remain untaxed under his plan.

McKay, who is being forced out of the Legislature by term limits, will have to convince the business community, and Republicans in the state House, of the plan's wisdom.

The House, also controlled by Republicans, has voted to cut taxes heavily and is loath to consider anything that might be construed as a tax increase.

In the late 1980s lawmakers created a tax on services to broaden the tax base, but businesses argued it was a tax hike, and it was repealed shortly thereafter. The short-lived services tax is widely blamed for costing then-Gov. Bob Martinez a second term.

McKay argues the tax rate reduction and elimination of some other taxes would make up for most losses of exemptions, saving money not only for households, but most businesses.

"It is not an exercise about bigger government, it's about smarter government," McKay said.

The constitutional change would also include requiring a super majority vote in future Legislatures to raise taxes or enact new exemptions.

Rep. Johnny Byrd, a top lieutenant to House Speaker Tom Feeney, said the House would listen to McKay's plan, but questioned the idea that it could be revenue neutral, as McKay vows.

Byrd said if taxes go down for some, they might go up for others to make up the difference.

"I want to find out who those people are," said Byrd, R-Plant City.

Gov. Jeb Bush would also have to approve.

"I think it is deserving of discussion, I think some of the ideas have merit," Bush said. "I want to make sure that whatever we do, we don't damage the economy, we don't put Florida at a competitive disadvantage."

That's also the concern for businesses, many of which argue they can't afford to hike prices to pay a tax they don't currently pay.

"If you're looking at an engineering or accounting firm, their margins are so tight they're not gonna be able to absorb that," said Stephen Birtman, state director of the National Federation of Independent Businesses. "They're going to pass that on to the consumer and that puts them at a competitive disadvantage when they compete for contracts with out-of-state companies."