Cut Fla. corporate income tax?
Yes: Firms, not government, know best where to invest No: Make levy fairer to raise more funds to meet needs
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Florida’s economy has made a dramatic recovery thanks to the hard work of our families, private sector and responsible planning by our state government. Our private sector is creating jobs at a rate well above the national average and our unemployment rate has dropped by nearly half from over 11 percent in 2009 to 5.6 percent in 2014.
To continue this economic growth, we must continually evaluate our taxing and regulatory structure to look for ways we can reduce the burden government places on families and businesses across our state.
Senate Bill 138 increases the exemption of the corporate income tax from the first $50,000 earned by a corporation to the first $75,000. Increasing this exemption will result in an estimated savings to Florida’s businesses of over $7 million this year and over $18 million each year thereafter. It will completely eliminate the corporate income tax for approximately 2,100 more businesses.
It is important to note that this is different than an outright elimination of the tax or an across-the-board reduction of the corporate tax rate. Currently, Florida corporations pay taxes on their net income, which is determined by their adjusted federal taxable income, less the $50,000 corporate income exemption at a rate of 5.5 percent. Florida’s bottom-up approach of increasing the exemption gradually gives smaller businesses a bigger break by progressively eliminating them from paying this tax. Companies have the opportunity to use these dollars to expand their businesses, add jobs, and even increase employee wages.
Opponents of this proposal argue that corporate tax breaks benefit only the most wealthy, but an understanding of the definition of a corporation proves this line of thinking false. Corporations are simply entities that come in all shapes and sizes and represent actual people of all income levels. A corporation can be big or small, an international conglomerate or a family-owned business in your neighborhood. A corporation can be owned by an individual, a family, business partners, employees or a group of shareholders.
The people who are represented by a corporation are the ones who bear the tax burden and are the same people we are counting on to create new and better employment opportunities that will improve Florida’s and its families’ economic futures.
It’s simple: When a corporation pays more in taxes to the government, it has fewer dollars available for reinvestment or distribution to the people it represents. Our goal in Florida is to create an environment where companies pay fewer taxes to the government in order for them to have more money to expand, increase employment opportunities, become more efficient, and pass that savings and ingenuity on to the people it represents — all of which leads to broader economic growth across the state.
Florida’s businesses know best where they should be investing money in order to grow their companies and provide economic opportunities for their employees. The direct investment back into the economy through higher wages and more job opportunities, increased production, and lower prices for consumers allows for a faster return on the investment than paying it to the state in taxes.
The increase in the corporate income-tax exemption is just one part of a broad package of tax reductions designed to benefit each and every Floridian. Part of Florida’s allure for private citizens is that we don’t have a personal state income tax. Just like people, businesses will go where its money is treated well. Eliminating the corporate income tax for more companies extends Florida’s appeal to businesses and helps create long-lasting economic growth for Florida.
Today’s moderator
Gov. Rick Scott put a bull’s-eye on Florida’s corporate income tax when he first ran for governor in 2010. The tax is still around. But so is the bull’s-eye.
Scott’s economic policy proposals in 2010 included phasing out the state’s 5.5 percent tax on corporate income over seven years. The tax generates about $2 billion a year — a small but still significant share of Florida’s $77 billion budget.
Legislators took a different approach. In 2011, they increased the income exempt from corporate taxes from $5,000 to $25,000, at an annual cost to state coffers of $30 million. In 2012, they raised the exemption again, to $50,000, reducing state revenues by another $30 million a year. Together, the exemption hikes took nearly 14,000 smaller corporations off the income-tax rolls.
In both 2013 and 2014, Scott proposed raising the exemption again, to $75,000. Legislators balked at giving up the additional tax revenue.
But this year, two state Senate committees have endorsed a bill from one of today’s columnists, Republican Dorothy Hukill, to raise the exemption to $75,000. Hukill argues that continuing to reduce the tax burden on corporations would spur economic growth.
Today’s other columnist, Karen Woodall, thinks Florida’s tax system is already friendly to business, but not to middle- and lowerincome state residents. Cutting corporate taxes again would leave fewer dollars for programs that would benefit those residents, in her view.
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Florida needs to modernize its tax structure, including the corporate income tax. It’s one of the lowest in the nation — 5.5 percent of net profits with the first $50,000 exempted, levied primarily on C corporations. Other businesses, including S corporations, partnerships and limited liability companies, are exempt.
Rather than reducing or repealing the tax, a better approach for Florida’s economy would be to expand the tax to all of Florida’s profitable business entities.
Florida already has the second most unfair tax system in the country, according to the Institute on Taxation and Economic Policy. Its analysis shows that in 2015, Floridians in the lowest 20 percent income bracket will pay 12.9 percent of their income on state and local taxes while those in the middle 60 percent will pay 7 percent and those in the top 1 percent will pay 1.9 percent.
As one of only seven states with no personal income tax, Florida relies heavily on sales and excise taxes. Those taxes are considered to be among the most regressive because they do not take income levels into account.
The corporate income tax was adopted more than 40 years ago after then-state Sen. Reubin Askew won his campaign for governor promoting a “Fair Share Tax Program.” It included a tax on corporations so that the tax burden on middle- and low-income Floridians would be reduced.
In a brief published by the Florida Center for Fiscal and Economic Policy in 2011, we learned that few actually pay the corporate tax: less than 1 percent of for-profit businesses operating in the state. That is not fair.
The report also cites a 2010 study of the corporate income tax in Virginia, which said: “While states have long utilized their tax structure to attract new firms and promote the expansion of existing companies, research literature suggests that tax policy may not be a cost-effective means of creating jobs and, ultimately, boosting state economies.”
That study also stated: “Funding tax reductions by reducing public services appears to significantly temper potential job gains, particularly if budget cuts are aimed at programs valued by businesses, such as transportation or education.”
Additionally, a 2003 Florida Senate report stated that hundreds of millions of dollars are lost every year to “tax avoidance behavior” by corporations.
Florida has long been considered a “business-friendly state”; the conservative Tax Foundation has ranked Florida fifth best in its State Business Tax Climate Index from 2006-2015. The Fiscal Times currently ranks Florida fifth in its review of “The 10 Best States for Taxes.”
Yet Florida continues to rank in the bottom when it comes to per-capita funding of our social infrastructure:
It’s 49th in state and local spending for education, according to the National Education Association.
It’s 43rd in the quality of services for the elderly and disabled and their caregivers, according to a report from AARP, the Commonwealth Fund and the Scan Foundation.
Only 17 states have a higher poverty rate, and children under 18 have a rate of 25.4 percent, according to the U.S. Census Bureau.
Over 3.2 million households are either in poverty or struggling to survive, according to the United Way of Florida. More than a million Floridians lack access to health insurance. Let’s modernize Florida’s corporate income tax by removing exemptions, exclusions and loopholes, and asking every profitable corporation to pay its fair share to build a social and economic infrastructure that benefits business and residents alike.
Florida’s bottomup approach of increasing the exemption gradually gives smaller businesses a bigger break … Florida relies heavily on sales and excise taxes, among the most regressive because they do not take income levels into account.