Talking Tax Cuts: Too Much from This Source?

Talking Tax Cuts: Too Much from This Source?

I began a discussion of tax cuts earlier this week by noting that arguments for tax cuts tend to come in three varieties. The first and perhaps most common, that taxes are simply too high (period), I considered on Monday. Today, we take up the second: too much tax revenue is being taken from a particular source.

Governor Scott, in his continuing campaign get Florida back to work, seems to believe both that taxes are too high in general and that business taxes in particular are too high. His targeted tax cuts reflect the conviction that less of the revenue we need to run government should be taken from the businesses we need to generate jobs.

But Governor Scott is not the only one in the Capitol making a case for right-sizing specific tax burdens.

Nowhere is this more evident perhaps than in the conversations about education funding.

Education is one of the very few policy domains where there seems to be broad Tallahassee consensus for spending more, not less. Indeed, there is something of a competition over who will provide just how much money for education (and who will be entitled to the bragging rights that go with those increased numbers).

The sources of education funding are complex, involving state-mandated local property tax, optional local property tax, the Florida lottery and other sources. But even more complicated is the way leaders talk, and are obligated to talk, about the way we fund education as well as other services at the local level.

Any local official in Florida knows that we essentially are obligated (by the state) to treat every additional dollar of tax revenue generated from ad valorem tax as a tax increase. If someone adds a building or an addition to a property, the added tax they pay is called a tax increase. If the real estate market improves and the value of properties rise, generating more tax revenue, that’s a tax increase. If someone sells a house that wasn’t on the market for years and years, and the assessed value is reset to reflect something closer to the actual value of that property, producing more tax, that’s a tax increase.

(It’s not quite that simple. If these sorts of events, taken in aggregate and against those cases where property values declined, produce more ad valorem revenue, then we must call it a tax increase. If some properties improve in value, and others decline, so that the net effect is no change in the ad valorem generated for the city or other jurisdiction, that’s not a tax increase.)

We don’t say that about sales tax. If retail business is booming, producing more sales tax, that’s not called a tax increase, even though we citizens paid more tax because we bought more stuff.

This double standard now is vexing the Legislature, because a very large proportion of the total proposed increase in the state budget for education actually is coming from the property tax (more than $500 million of that increase, in fact). Some legislators are expressing discomfort with the added cost to property owners while the state touts its big tax cuts for businesses. Some are openly suggesting there’s a degree of disingenuousness to such a switching of burden. Others, who like this arrangement, are arguing that, well, it’s not really a tax increase (the argument those of us in local government have been making against “Truth in Millage” requirements for years).

For now, the fundamental question is one of where the tax revenue for record education spending should come from. Governor Scott argues that we should take less from businesses and more from property owners. Some legislative leaders are suggesting that’s the wrong place to put the burden.

Both groups agree that education is a policy priority and requires additional funding. Somehow, additional revenue needs to be generated to achieve that goal.

Both groups also agree that tax cuts are desirable, and both groups are proposing them. But some are focused on business taxes, others on a broader range of taxes and taxpayers.

There will be real winners and losers if taxes are cut in some area while expenditures for education are increased. The tax cut argument in this case is, ultimately, about who should pay to provide the services we have decided government should serve. Cutting taxes while raising revenue is a clear statement that the need for tax cuts has to do with the particular source of revenue, not opposition to taxes in general.

There’s yet a third kind of argument for tax cuts. It’s the notion that by cutting taxes, we actually will increase revenue. We’ll take a look at that argument Monday.