Florida’s climate is one of our best qualities. In fact, it’s what gives us our nickname, “the Sunshine State.” Our moderate to warm winter temperatures, cool sea breezes and tropical summers make Florida a premier choice to live, learn, work and play. It’s no secret that Florida’s weather is one of the main reasons we welcome more than 90 million visitors, hundreds of thousands of migrating seniors and billions of dollars in economic activity each year.
While it’s true that Florida provides the perfect climate for tourism and business, it’s another type of climate that we examine in this week’s Scorecard Stat – Florida’s tax climate.
“There are only two certainties in this world.”
Yes, it’s true that taxes are considered as sure as our own physical mortality. But, did you know that according to the Tax Foundation, it takes Americans collectively seven billion work hours and $165 billion annually to comply with the U.S. tax code?
When it began in 1913, the tax code was four pages. Today, those four pages have expanded to more than 70,000 – creating a labyrinth of regulations that embody a real cost to families and small businesses each year. Currently, 55 percent of federal income taxes are paid by taxpayers with a yearly adjusted gross income of $200,000 or more. Eighty-one percent are paid by those with a yearly adjusted gross income of $100,000 or more. Translation: our federal income tax system is progressive and hits families and small businesses much harder as incomes rise.
So, why would so many families (enough to soon make Florida the third largest state in the U.S.) consider relocating here? Consider the following:
- Florida is one of only seven states that do not levy a state income tax,
- “Tax Freedom Day,” identified as the day which an individual has earned enough money to pay their total tax bill for the year, is April 15 in Florida, 18th earliest in the U.S.,
- Florida’s state and local tax burden of 9.3 percent ranks us 27th in the U.S. and less than the national average of 9.9 percent, and
- Florida's taxpayers pay $3,728 per capita in state and local taxes.
As good as this may seem for individuals, the tax bill is increasingly being passed to businesses. Overall, corporate and business taxes have a negative impact on economic activity. Unnecessary taxes and regulations create obstacles for Florida’s families and businesses. An increase in competition coupled with burdensome taxes, can result in reduced business relocations and expansions in the state. “There is never one reason why businesses don’t settle in Florida, but often a number of reasons,” said David Hart, Executive Vice President of the Florida Chamber. “Taxes absolutely have an impact on placement and expansion of businesses.”
Each year, the non-partisan group Tax Foundation issues its state-by-state tax climate index, ranking the 50 states on their overall tax climate. The criteria for rankings include each state’s corporate, individual income, sales, unemployment insurance and property taxes. States are ranked by category and then given an overall ranking. The exhibit below provides the 2014 rankings:
SOURCE: Tax Foundation
So where does Florida rank?
Florida’s overall ranking is number five – trailing only Wyoming, South Dakota, Nevada and Alaska. Overall, the state benefits from a high ranking in both the unemployment insurance and individual income tax categories. Florida ranks 18th and 16th respectively in sales and property tax. Florida’s corporate tax rating (Florida ranks 13th) continues to be in the top third in the nation. In comparison, the most recent ranking lists New York and New Jersey as having the two worst climates in the nation.
In its analysis of state policies, the Tax Foundation articulates two specific points that provide a wealth of context to the importance of this issue:
- Taxes matter to businesses. Business taxes affect business decisions, job creation and retention, plant location, competitiveness, the transparency of the tax system, and the long-term health of a state’s economy. Most importantly, taxes diminish profits. If taxes take a larger portion of profits, that cost is passed along to either consumers (through higher prices), employees (through lower wages or fewer jobs), or shareholders (through lower dividends or share value). Thus, a state with lower tax costs will be more attractive to business investment and will be more likely to experience economic growth.
- States do not enact tax changes (increases or cuts) in a vacuum. Every tax law will in some way change a state’s competitive position relative to its immediate neighbors, its geographic region and even globally. Ultimately, it will affect the state’s national standing as a place to live and do business. Entrepreneurial states can take advantage of the tax increases of their neighbors to lure businesses out of high-tax states.
“One of the most important factors in economic development is a healthy tax climate,” said Gina Reynolds, CEO of Florida’s Heartland Regional Economic Development Initiative. “One of our biggest economic development strategies, growing our region as a global hub of trade, necessitates a healthy climate for both taxes and regulations. We possess the perfect location to move goods throughout the United States, Latin America and Asia – right here in Florida. We need to foster that through a highly competitive tax climate.”
Last week, the Florida Chamber of Commerce released the 2014 Florida Business Agenda. On January 30, 2014, the Florida Chamber Foundation will convene a Statewide Summit on Taxes and Regulation in Jacksonville. As we meet with policymakers, business leaders and cabinet and agency heads, we want to hear from you. Share your concerns, suggestions and examples of how taxes and regulations impact you or your business.