Scott’s top legislative priority this year — a $141 million tax cut for manufacturers — comes with an asterisk: It has to garner ‘Yes’ votes from two-thirds of the Legislature to pass.
That means Democrats — whose gains in November breached the Republican supermajorities in Tallahassee — suddenly find themselves in an unfamiliar power position as they try to defeat Scott in 2014.
“I doubt that’ll be able to get a supermajority,” said Rep. Perry Thurston, a Plantation Democrat and minority leader in the Florida House. “It’s just another [business] incentive. We don’t know if it works.”
The bill seeks to eliminate sales taxes on all manufacturing equipment and machinery.
Scott has already put considerable political capital behind the tax cut, stating on numerous occasions that this was his top priority for 2013, along with a $1.2 billion boost in education funding.
“We need to build up manufacturing jobs in the great state of Florida,” he said in unveiling a $74.2 billion budget plan last month. Scott said the tax cut would create jobs and increase exports.
A failure on the measure would be politically embarrassing for Scott, who has staked his governorship on job creation and CEO-like efficacy.
It’s not clear if the entire Democratic caucus agrees with Thurston in opposing the tax break, which faces a higher vote threshold because it would hit local governments. Many Democrats have voted in favor of Scott’s tax cuts for businesses in the past. But as 2014 nears and Scott’s poll numbers sag, the party has begun to take a more aggressive stance against such cuts. Democrats recently slammed Scott for supporting “tax giveaways to special interest cronies.”
If Democrats decide to take a united stand against the manufacturing tax cut, it could be the first time the minority party leverages its strengthened numbers to torpedo a Scott-backed initiative. The party has been mostly marginalized for the last two years, as Scott and a Republican supermajority pushed through conservative legislation.
“Politics always come into play,” said Rep. Michelle Rehwinkel-Vasilinda, D-Tallahassee, acknowledging her party’s newfound power to buck Scott’s tax cut. “There’s the political piece as well. And yes, that political piece will be in play. As it should be.”
Rehwinkel-Vasilinda, the top Democrat on the Finance and Tax committee, said she has not decided how she will vote on the measure. She said the bill’s supporters would have to convince her that it would create jobs and not overburden local governments, who stand to lose tens of millions of dollars in tax revenue. Rep. Mark Pafford, D-West Palm Beach, called the proposal “ridiculous” and “trickle-down, voodoo economics.”
Scott’s team said the governor fully expects to get bipartisan support for the measure.
“Gov. Scott is confident that those who support job creation will support this,” said Jackie Schutz, a spokesperson for the governor. “This is about job creation. It’s about bringing more manufacturers to Florida.”
Manufacturers already enjoy a tax break for their equipment, but they must first show that the new machinery boosted productivity by at least 5 percent.
It’s not clear how effective Scott’s proposal to scrap the productivity requirement would be.
In 2010, the Legislature and former Gov. Charlie Crist earmarked $43 million for a similar program. It allowed manufacturers to benefit from a tax break even if their new equipment did not boost productivity. During the two-year program, only 35 companies took advantage of the deal and only $505,000 of the $43 million was spent. There are more than 17,000 manufacturing companies in Florida.
The Florida Manufacturers Association said the 2010 program took place during the recession and was riddled with red tape, turning off potential participants.
“The new proposal would just be an elimination [of taxes] without extensive paperwork burdens,” said Nancy Stephens, director of FMA.
While current law requires manufacturers to get an official tax exemption document from the Department of Revenue, Scott’s proposal would allow them to simply sign a document stating they are eligible for the tax exemption.
A group of government economists met last week to discuss the proposal, and brought up a number of concerns. For example, out-of-state companies would be able to take advantage of a loophole in the law to buy tax-free machinery in Florida, without creating jobs here.
Also, fraudsters could easily take advantage of the law, declaring themselves eligible for a tax break with a simple signature and no additional verification. Because of Florida’s statute of limitations, it could be difficult to prosecute them if the fraud is eventually discovered, officials said.
The tax break also could cost more than the $141 million Scott originally claimed. According to estimates discussed Friday by state economists, the proposal could potentially reduce tax revenues by more than $200 million per year.
Much of that impact would fall on local governments. The bill has to garner a two-thirds majority vote because Florida’s Constitution discourages Tallahassee lawmakers from passing on unfunded mandates to local governments.
State Sen. Chris Smith, a Fort Lauderdale Democrat and minority leader in the Senate, said his caucus would be skeptical of any plan that hit local government revenues too hard.
There are 14 Democrats in the 40-member Senate, meaning Scott needs at least two of them to get the necessary 27 votes to pass his bill. In the 120-member House, where there are 44 Democrats and 76 Republicans, Scott needs 80 votes to pass his measure.The governor may also need every Republican vote, which can be difficult in the Senate where lawmakers are typically more independent. Lawmakers also could turn their votes into bargaining chips, looking to force Scott’s hand on other issues.
Smith said voters might not want the Legislature to pass more business tax cuts. He pointed out that Floridians rejected Scott’s plan to put a new business tax cut in the state’s Constitution last November.
“I think voters are starting to feel that impact as they see that their parks are closing earlier, they’re getting less police officers and firefighters,” he said. “People are starting to draw the connection between all of these tax cuts and the lack of services.”