April, 2008
An Ostrich Farmer's Nightmare
Patrick Flanagan
Surely you've noticed that when you go to the grocery store, your bread is tax-free, but your beer is not. That's because in Florida, essentials like food, medicine, and rent, among other things, are exempt from the sales tax.
But would you have guessed that ostrich feed is sales tax-exempt? If you tax livestock feed, the argument goes, you tax ostriches twice: once during their growth, and once again when they are finally sold. This, as any member of the Florida Farm Bureau will tell you, is unfair to farmers and bad for the economy. But seriously, ostrich feed? Super Bowl sky box tickets are also tax-exempt. Figure that one out.
If you think our sales tax laws are crazy, then you should take a look at the property tax laws. In Florida, we have no state personal income tax; we're one of seven such states in America that has no such tax. Instead, the majority of our state government's tax revenue comes from other taxes, including sales tax and property tax. If you've been paying any attention to the politics lately, you know that Floridians are not happy about the status of their property taxes. New houses come with ludicrously high taxes, and old houses lose their grandfather exemptions as soon as the property deeds change hands. Coupled with the subprime loan crisis and the soft real estate market, buying property is risky business.
To help relieve some of the pressure, the Taxation and Budget Reform Commission has been hard at work, debating a solution. The TBRC is a commission consisting mostly of businessmen and former politicians that meets once every 20 years to review Florida's tax laws, and unlike most commissions, it has the power to put proposed constitutional amendments right on the voter ballot. The TBRC recently proposed an amendment which will dramatically alter Florida's property tax. Currently, about 25% of the average property tax goes to schools, and this amendment proposes dropping that 25% from the property tax and funding schools from another source, like increasing the sales tax by a penny and broadening the tax base by removing some sales tax exemptions.
The biggest argument against increasing the sales tax is that usually taxes on consumption are regressive. That is, consumption taxes tend to punish lower-income families because they spend a higher percentage of their earnings on consumption, whereas wealthier families can afford to invest in property, stocks, and savings. That's where Florida's tax-exemptions come in; those exemptions keep the sales tax progressive while still letting Disney World tourists pay for our infrastructure. The current TBRC proposal suggests removing some of these exemptions as a possible means of replacing the property tax revenue. It's important to realize that the proposal isn't a reduction in taxes, but really a tax swap, from property tax to consumption tax.
But it's not just a swap, because the economy is not a zero-sum game. Consumption taxes are great. They provide incentives to save, not to spend. They require minimal bureaucracy to maintain, and are simple to adjust. They make taxes transparent like no other tax; every time you spend a dollar, you know exactly how much is going to the government. And consumption taxes can easily be made progressive. Florida has sales tax exemptions; the proposed federal FairTax has preemptive tax rebates for low-income families.
The property tax, on the other hand, is often convoluted beyond comprehension, and sometimes sneaky. You may not want to pay an extra penny on everything you buy, and you may say, "But I enjoy getting my ostrich feed tax-free!" But what you might not realize is that property taxes indirectly raise retail prices. Just like the invisible "inflation tax" and corporate income taxes, all costs for producing and selling a product get transferred to the consumer. Be it the price of raw materials or a government levied tax, the cost is always passed on to the consumer. It's unconstitutional in Florida to tax rent; rent has been deemed a "necessity". But property taxes force landlords to raise their rent, and the end result is... a tax on rent! So really, you're already paying that extra penny sales tax, maybe even more. You just don't see it directly, because the merchant raised his prices to pay his obscene property taxes. If the same amount of revenue is raised with a consumption tax instead of a property tax, everybody benefits, because consumption tax is simply a clearer, more efficient method of taxation.
So when you see the amendment to swap the property tax on the ballot in November, think about the gloating ostrich farmers, subsidized by your tax dollars. Think about the invisible tax your government is levying on you, without your notice. And then vote yes to the simple, transparent consumption tax. It's not a complete overhaul, but it's certainly a step on the road to prosperity.