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Tax Phobia In Tallahassee Protects Huge, Unfair Loopholes
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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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Reader Comments
Posted by ( JackNelsonSteward ) on April 11, 2008 at 7:57 a.m. ( Suggest removal )
You have to keep in mind that basic to Republican philosophy is to starve government so it is only capable of providing minimal service.
Everything else should be "privatized."
They're not likely to close loopholes on business, just cut off services to citizens.
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Posted by ( Ariel ) on April 11, 2008 at 8:57 a.m. ( Suggest removal )
Worldwide combined reporting is the only way to go. Using a "water's edge" system that looks only to US factors allows using offshore shell corporations to hide income. As for tax rates, the statutory rate is misleading. Any CFO will tell you the effective tax rate is far more important. That's why business lobbies not for reductions in the corporate tax rate, but for industry-specific deductions, exclusions, and credits, all of which reduce the effective tax rate.
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Posted by ( Major7th ) on April 11, 2008 at 1:57 p.m. ( Suggest removal )
I could think of a few other ways as well, but I don't have enough pigs for their pork barrel. We have overdone the incentive thing several times over.
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Posted by ( dutch ) on April 12, 2008 at 2:04 p.m. ( Suggest removal )
Ever since the GOP took control of the Florida Legislature they have been creating tax loophole (exemption) to special interests every year. That is the way they raise campaign money at pay back time. Don't expect them to close any loopholes.
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Posted by ( drdneast ) on April 12, 2008 at 9:48 p.m. ( Suggest removal )
Taxing corporations would go against the Republican Party's platform of welfare for the rich. We don't even tax dry cleaning for gods sake. Why? It certainly isn't a neccesity like groceries or medical treatment or medicine. Dry cleaning is a service the upper middle class and the rich use more than anyone else, that's why.
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Posted by ( triprz ) on April 14, 2008 at 1:16 p.m. ( Suggest removal )
State employees only pay $600 per year for health insurance?!?!?!?! County employees (with some help) pay more than that every month! Out of pocket each month is upwards of $200 - and the state emps only pay $600 per year? Tribune, why are you all over the case of city & county employees when the state does this?? AND gives to sports stadiums? not to mention all the tax exemptions. Makes ya wanna leave the state..
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