Research Proposal on "State of Florida Adopt Income Tax"

Research Proposal 10 pages (3481 words) Sources: 7 Style: APA

[EXCERPT] . . . .

Florida Income Tax Controversy

One potential new revenue source, common in most states, remains unthinkable and unmentionable in Florida:

personal income tax."

State income tax unthinkable," 2007)

In Florida

Floridians confirmed their aversion to a state income tax in 1924, when voters voted "No" to the concept and banned the prospect of having a personal income tax through an amendment to the state constitution. ("State income tax unthinkable," 2007) Today, the State of Florida.com Web site (2002-2004) pointedly proclaims: "Major taxes collected in Florida include sales and use tax, intangible tax and corporate income taxes....There is no personal income tax in Florida." In light of current controversies regarding Florida's claim to "No income tax...," as well as the question: "Should the state of Florida adopt income tax?," this midterm paper focuses on a number of options contributing to answers to that particular question. Along with exploring the subject of Florida adopting a personal income tax, per se, this researcher also examines several (Archibald & Feldman, 2006) economic implications regarding the social costs and benefits of Florida's legislative and fiscal policies.

Balanced Tax System

The concept of a balanced tax system, Bell, et al. (2005) explain, has stimulated discussions and debates for decades. The traditional view purports that state and local tax systems "should collect 20- 30% of government revenue from the three major taxes -- income, sales, and property." This belief evolves from the perception that each of these taxes processes particular strengths and weaknesses, while they also differ in fairness, stability, and efficiency. The theory purported that government should not rely extensively on any one particular revenue resource. Hence, the contention, by some individuals, that Florida needs to adopt a state income tax. Today, however, despite attempts by some in the past to promote Florida's adoption of a state income tax, almost 75 years after the defining "No" vote in 1924, Florida, as one of seven states not employing a personal income tax, continues to be a tax haven for its residents. The other six states siding with Florida include Alaska, Nevada, South Dakota, Texas, Washington and Wyoming. ("State income tax unthinkable," 2007; "Looking for a Tax-Free," 2008, p. A10) on the eve of World War II, Florida was the least populous state in the U.S. Inhabitants were predominantly white, southern-born, and Protestant. By 2006, Florida had grown to be the home of the fourth largest population in the nation. Florida contends that the highest percentage of men and women over sixty-five live within its boundaries; that most of these individuals moved from the northeast or Midwest to retire or spend the winter there. (Achenbaum, 2006) Stakes relating to contemporary concerns regarding Florida's lack of a personal income tax prove particularly potent, and relate to the state's growth, according to Longino and Crown. (1989; cited by Conway and Rork, 2006) in part, due to the fact Florida does not have a personal income tax, researchers argue, Florida reported "a net gain of $5 billion in income from elderly migrants it received between 1985 and 1999...."

Sastry (1992, p. 73 cited by Conway and Rork, 2006) contends that every 2.5 elderly migrants Florida gains creates one new job.

Income Tax Considerations

The hardest thing in the world to understand is the income tax."

Albert Einstein (Quotations, 2006).

Perks Accompany the Lack of a Personal Income Tax

Recognizing that significant perks accompany the lack of a personal income tax in Florida, Mississippi, along with a number of other states "have repealed all income taxes on pension income or made other changes to their tax systems in an attempt to become retirement havens." (Mackey and Carter, 1994; cited by Conway and Rork, 2006)

Since 1976, more than 30 states eliminated their incremental EIG taxes rely solely on the "pick-up" tax instead. Some researchers and practitioners hypothesize a number of elderly individuals may move to Florida to avoid paying "death" taxes, such as those imposed on an estate, inheritance and gift, or EIG taxes.

Still other research casts doubt on this particular view, albeit that the elderly react to state EIG tax policies in making their migration decisions. In fact, when Conway and Rork (2006) used two separate analyses, they discovered evidence that the causality may run the other direction. States that experience elevated elderly in-migration may, contrary to much research, may more likely be to subsequently reduce or eliminate incremental EIG taxes.

Prior research results on elderly migration, albeit, based on cross-sectional data may be misleading as numerous historical net-importers of the elderly states also initially reduced or eliminated their EIG taxes. In their study, Conway and Rork, (2006) utilizes time variability in migration patterns and EIG tax policies and use the young as a "control" group two, in turn eliminate evidence that EIG policies affect elderly migration. Their study, rather than results usually retrieved studies based on cross-sectional data, proffers evidence that the causality may run in the other direction. In regard to the personal income tax controversy, Florida ran the opposite direction of most states. For Florida, this researcher contends, that direction proves to be the right way.

The Tax Revolt During the recount of their exploration of the link between state higher education effort and the tax revolt that started in the 1970s, Archibald & Feldman (2006) note that numerous individuals who distrusted legislatures initiated the tax revolt. They were reportedly gravely concerned with the government's growth at all levels, however, primarily distressed with the state government's growth. "The basic strategy of the tax revolt was to put hard limitations on the growth of state tax revenues or direct limits on spending growth." (Ibid.) the Tax and Expenditure Limitation (TEL), the primary legal change that resulted from the tax revolt, limits the growth of state revenue or expenditures to some outside indicator, generally the growth of state personal income. Twenty three states adopted a TEL starting in the late 1970s. A number of states also added supermajority requirements (SMRs), typically two-thirds, for the legislature to approve tax increases, however, this transpired more slowly and less frequently. Currently, thirteen states have an SMR. (Archibald & Feldman, 2006)

Chronology of EIG Tax Elimination

Conway and Rork (2006) present the following table (1) portraying the chronology of EIG tax elimination, initially initiated by some individuals supporting the tax revolt, along with state net in-migration rates.

Table 1: Chronology of EIG Tax Elimination and State Net in-Migration Rates

NET in-MIGRATION RATES

Year of State

Elimination

Alabama prior to 1960

Arkansas prior to 1960

Florida prior to 1960

Georgia prior to 1960

Nevada prior to 1960

New Mexico

Utah

North Dakota

Arizona (a)

Colorado

Vermont

Virginia

Missouri

Washington

California

Illinois

Wyoming

Texas

West Virginia

Minnesota

Maine

Oregon

Idaho

Rhode Island

South Carolina

Wisconsin

Michigan

Massachusetts

Kansas (b)

Delaware

North Carolina

Mississippi

New York

Montana

South Dakota

New Hampshire

Louisiana

Connecticut

Indiana still

Iowa still

Kentucky still

Maryland still

Nebraska still

New Jersey still

Ohio still

Oklahoma still

Pennsylvania still

Tennessee still

Bell, et al. (2005) report that scholars currently explore the effect of quality of life factors on economic growth, along with ways taxes impact growth factors, more than in the past.

Lifestyle amenities, including schools, parks, arts, and climate, have been found to positively affect development and growth, especially for industries using highly skilled labor. Perhaps most importantly for purposes of this report, there are hundreds of articles exploring the role of the public sector on economic development. This much is known. If the level of spending and quality of public services are held constant, increases in taxes negatively affect employment and economic activity. If the level of taxes are held constant, increases in public services positively affects employment and economic activity. Both of these effects have a much larger effect on the competitive advantage of municipalities relative to one another within a metropolitan area than they do on the competitive advantage of a metropolitan area relative to other metropolitan areas. (Bell, et al. 2005, p. i)

Alternatives to Florida adopting a state income tax include as a way to reduce Florida's rapidly rising property taxes includes increasing the state sales tax. Another way to lower tax bills for other individuals could be to raise property taxes for homeowners. Ray Sansom (R - Destin) House Policy and Budget Committee Chairman, regards the income tax as a terrible way to tax society. Referring to Floridians, he contends, "We would never consider something like that. That would be the last thing. it's sort of over our dead bodies." ("State income tax unthinkable," 2007) Sansom reported that House Republicans never even considered income tax when they developed their tax-swap proposal. In exchange for abolishing property tax on primary homes, known as homesteads, this increases 6% statewide sales tax to as high as 8.5%, consequently qualifying it has highest statewide sales tax in the U.S. Senate Democrats also reported they never considered an income tax when they designed their proposal to increase property taxes on homesteads, previously limited to increases totaling no more than 3% a year,… READ MORE

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