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Tax Phobia In Tallahassee Protects Huge, Unfair Loopholes

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The Tampa Tribune

Published: April 11, 2008

Florida Republicans have such an irrational fear of being accused of raising taxes that they won't think about closing loopholes that are increasingly unfair to Florida-based businesses.

Finding legal ways to collect taxes that are already on the books is not a tax increase. This year, with revenues falling far short of covering basic priorities, the Legislature should take a serious look at a few revenue-generating reforms.

Cuts are needed, but on the chopping block are programs such as dentures and eyeglasses for the elderly poor, hospice care for folks at death's door, and medical help for children born with a cleft palate.

Tough choices go beyond what to cut. Let's also look at making everyone pay what's already owed.

For example, Florida allows multistate businesses to shelter Florida income in other states. This makes the effective income-tax rate on small Florida businesses higher than the rate paid by corporations sheltering income elsewhere.

A company can reduce its tax bill by paying rent to an out-of-state subsidiary. Or it might send profits, on paper, out of state to pay itself for its own patents and trademarks.

Rep. Dan Geller, a Miami Beach Democrat, says closing the loophole with a technique called "combined reporting" would raise $365 million a year. Many other states already use the approach, so technical and constitutional issues have been ironed out.

Critics say the change would send a message that Florida doesn't want big companies to locate here. But it is neither good politics nor smart economics to charge Florida businesses more than is charged the interstate rivals who already enjoy economies of scale.

Republicans are correct that the total income tax on all corporations is so high it puts U.S. companies at an international disadvantage. The federal corporate tax rate is 35 percent, 13 points higher than Canada's and five points higher than the rate in Japan and the United Kingdom. The U.S. tax is even higher than in France. That's a separate issue. Florida's rate is only 5.5 percent, a point below the U.S. state average.

Another reasonable way to raise revenue without technically raising taxes is for Florida to join the multistate effort to find an easy and equitable way to collect sales taxes on catalog and Internet purchases made by Florida customers.

Simply slashing Medicaid programs to balance the state budget will mean losing federal matching funds, which will be diverted to other states.

Other savings can be found closer to home. Lawmakers are right to consider cutting their own pay. The Senate proposes a 10 percent cut and the House 2.5 percent. Even more savings could be found in trimming the generous health-insurance benefits legislators give themselves, staffers and state executives. Some 20,000 state workers get family policies for free. The cost of continuing this coverage should they quit their state job is nearly $12,000 a year.

If these workers paid just $600 a year, the rate charged lower-level state workers, the state would save $12 million.

Lawmakers serious about cutting costs will rein in such extravagant benefits.

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