Miami Herald: Florida Center for Fiscal and Economic Policy–Wrong time to cut Florida’s corporate income tax

BY JOHN C. HALL
www.fcfep.org

Miami Herald–December 31, 2009

Here we are at the bottom of a deep hole, and now Gov. Charlie Crist offers us a shovel when we could really use a ladder.

The crushing irony of a stubborn recession like this one is that the needs of ordinary families grow at the same time the resources available to the state to meet them drops. Like other states, Florida has seen a bigger decline in revenues than ever before.

The governor’s recent proposal to reduce or eliminate Florida’s corporate income tax would dig the hole deeper, costing the state up to $1.5 billion that could help struggling families with education, healthcare and any number of other important services.

But the harm would go beyond families’ needs today. If we do not maintain and expand Florida’s investment in education, transportation, job training and healthcare, our state will be poorly positioned when the economy recovers.

If anything needs to be done to Florida’s tax system it is to close loopholes that allow many large, profitable multi-state companies to pay very little tax and totally exempts some businesses. Tax subsidies to profitable sports teams should also be eliminated. And the state sales tax should be overhauled to better reflect the modern economy by including many services that didn’t even exist when the tax was begun.

Instead of tax cuts that will lead to further reliance on spending cuts, Florida needs a balanced approach — one that eliminates inefficiencies but also includes more revenue, not less. This is the same way families react to tough economic times. Yes, they tighten their belts, but they also look for new income. A crisis like we face today is too big to be addressed by any single approach. And relying too much on spending cuts can actually damage the economy and threaten the fragile recovery. After all, money the state spends goes to salaries, contracts and purchases. In other words, it helps to keep people employed by maintaining demand in the economy.

Today, large numbers of Florida families have needs for public services but are on “waitlists” because of insufficient funding. This includes more than 28,000 seniors who need help to avoid nursing homes; more than 18,000 people with disabilities and their families; more than 400,000 adults and children with mental health problems; close to 5,000 people needing substance-abuse services; and members of 200,000 families who want to work but cannot get financial assistance for child care.

More students are dropping out, classrooms are overcrowded, PTAs are fundraising for basic educational supplies and university students are being charged so much more for tuition that many will not be able to get the degrees they need for a lifetime of productive work.

Against this backdrop, the proposed cut in corporate income taxes comes across as shortsighted. Nor is it likely to produce the jobs that the governor and other supporters claim. Businesses need customers, not tax breaks. If more people can buy what a company can sell, the company will hire. Tax breaks don’t help with that.

Meanwhile, to replace the total revenue from the current corporate income tax ($1.5 billion), almost 700,000 new jobs would have to be created, with an average wage of $37,400. That would mean a 7-percent growth in the labor force. It’s way too much to expect.

But it’s worse than that. Losing more than a billion dollars would translate into cuts in critical services. Rather than promoting jobs, it would make Florida a less attractive place for businesses to locate or expand. Business people know that, much more than tax rates, their decisions on where to locate are influenced by the quality of the workforce, the educational system, public safety, a clean environment and the likelihood of a strong market for their goods and services.

You get all that by investing, not cutting. That’s why a balanced approach that includes revenues makes sense for today and tomorrow.

The better approach is one that is balanced, not one that will reduce revenue, lead to more budget cuts in needed public services and deepen our economic struggles.

John C. Hall is executive director of the Florida Center for Fiscal and Economic Policy, a nonprofit organization in Tallahassee.