NCPA - National Center for Policy Analysis


August 23, 2004

Florida, a state whose sales tax does not tax many services and one of the few states without a personal income tax, does not need to reform its tax laws, says a new report by Randall Holcombe of the James Madison Institute.

Many suggest Florida's heavily service-oriented economy cannot raise sufficient revenues in a modern economy unless it is taxed. However, empirical data shows that the state's tax structure has kept pace with or exceeded Florida's growth, says Holcombe.

  • Total tax revenue as a share of total state income has remained fairly consistent over the last 30 years, reaching 6.1 percent in 2003.
  • Sales tax revenue as a share of income has risen from 2.5 percent in 1971 to 3.2 percent in 2003.

Taxing services would result in double-taxation, says Holcombe, a policy that would hurt the state's economic growth. He adds that, overall, Florida's tax system is more efficient and freer of fiscal problems than other states:

  • Since it does not tax personal income, Florida has more stable tax revenues in economic downturns than other states because income fluctuates more than consumption.
  • In 2002, the 10 states with the lowest taxes (including Florida) had fiscal shortfalls averaging less than a third of high-tax states.

Source: Randall G. Holcombe, "Is There a Problem with Florida's Tax Structure," Journal of the James Madison Institute, Winter 2004.


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