Tourism, retirees may help state with income GAP
A new report says a rising concentration of income among the nation’s richest households is a problem for Florida because it is one of 10 states most dependent on sales taxes.
Florida has no state income tax and its major source of revenue is a 6 percent sales tax.
The report by credit ratings agency Standard & Poor’s notes that the annual growth rate in the state’s sales tax has dropped dramatically over the last three decades. The annual average rate was 11.25 percent in the 1980s, but it has dropped since then and is averaging just below 2 percent since 2009.
Most economic activity comes from consumer spending, a key driver of growth. But consumers have become increasingly reluctant to spend as median incomes have barely increased over three decades and remain lower than they were in 2007 when the Great Recession began. Florida’s median family income, according to recent U.S. Census data, is about $46,000 a year.
By contrast, the top 1 percent of earners has prospered for more than 30 years. Adjusted for inflation, their average incomes have nearly tripled to $1.26 million since 1979, according to the IRS.
But S&P notes that wealthier individuals tend to spend less of their money, meaning that states are unlikely to see much of an increase in sales tax collections. The top 5 percent in Florida have an average income of nearly $307,000.
Florida’s own economists, however, continue to predict steady and sustained state revenue growth in the next several years. More recent numbers show that state taxes are now growing between 4 percent and 5 percent annually.
They also say that the state is shielded because state coffers are dependent on tourists and a continued influx of retirees moving to the state. A new three-year financial outlook predicts that state legislators will have enough money to pay for schools and health care and still have a small surplus.
Amy Baker, the coordinator of the state’s Office of Economic and Demographic Research, notes that as much as 15 percent of the state’s sales tax collections come from tourists.
“That provides in normal times a buffer a lot of other states wouldn’t have,” Baker said.
Florida economists also say that the wave of baby boomer retirements that began earlier this decade will also have a positive impact on the state’s coffers. Baker said that there will be a surge in spending as they move to the state.
The state used to tax some of the wealth accrued by its residents. But that changed under former Gov. Jeb Bush, who served from 1999 to 2007. Bush eliminated the state’s intangibles tax, which placed a levy on stocks and other investments held outside of normal retirement accounts.
Florida’s major tax source remains the sales tax. But the state also collects corporate income taxes, taxes on insurance premiums, gas taxes, alcohol taxes, tobacco taxes and fees placed on automobiles.
(From the: Saint Peters Blog)
