The policy is an economic “disaster.” People and companies will “flee” Florida. The Sunshine State will turn into New York or California overnight.
That’s just some of the messaging Republicans and business groups have used to describe Andrew Gillum’s proposed corporate tax increase. The Democratic nominee for governor says he wants to raise the state tax rate from 5.5 percent to 7.75 percent in order to finance a $1 billion investment in education. (Part of that investment would also come from the legalization and taxation of recreational marijuana.) Gillum’s campaign says the increase is a way to make sure large corporations are paying their “fair share” in the wake of the significant tax cut they received from the 2017 Tax Cuts and Jobs Act.
So is Gillum’s plan an economic catastrophe in the making or a way to level the playing field? According to tax policy experts, the reality is more nuanced than either explanation. Here are four questions you need answered about Gillum’s corporate tax proposal.
1. Would Gillum’s proposed corporate tax increase stop corporations from moving to Florida?
Academics say that it’s possible. A 2015 research paper published by the National Bureau of Economic Research showed that corporations are more likely to pull resources — employees, stores, etc. — from states that raise their corporate tax rates. But that study was limited to corporations with a presence in more than one state. And it was conducted before the 2017 GOP tax bill, which permanently slashed the national corporate tax rate from 35 percent to 21 percent. (Many corporations used various loopholes to avoid paying the 35 percent rate under the old system.)
Gillum has said that companies are not just looking for a low tax environment but also states with top-of-the-line education and transportation systems.
“The other side has basically said the only way we can grow the economy is by being a cheap date. And I reject that,” Gillum told the Tampa Bay Times editorial board in July. “If we don’t generate the revenue that we need in order to invest in public education, in public infrastructure, in affordable housing, those companies are never going to choose to locate here.”
Still, Miguel Santos, the chair of the economics department at the University of Miami’s Business School, said Gillum’s plan could make Florida marginally less competitive than neighboring states when it comes to attracting new corporations. According to the fiscally conservative-leaning Tax Foundation, Florida’s corporate tax rate is among the lowest in the South.
“We are a little bit on the low side,” Santos said. “So the idea is that, in my modest opinion, this tax may be a little bit sensitive” — i.e., companies may be responsive to changes in the tax rate.
Business groups in Florida agree with these analyses. Craig J. Richard, the president and CEO of the Tampa Hillsborough Economic Development Corporation said the companies weigh the corporate tax rate when deciding where to expand. Although, Richard said, other variables like the business climate and available talent also factor in.
Edie Ousley, the vice president of public affairs at the Republican-tilting Florida Chamber of Commerce, said high taxes are driving companies from other higher-tax states.
“We need to keep Florida’s momentum going, not fall for gimmicks that haven’t worked in California, New York or Illinois,” Ousley said.
2. How does the 2017 GOP tax plan fit in with all of this?
Nearly every American saw a tax cut from the Tax Cuts and Jobs Act of 2017. But the wealthiest Americans and corporations — who pay the lion’s share of taxes in America’s system — benefited the most. In April, Publix, Florida’s largest private corporation, reported a 25 percent year-over-year increase in second-quarter profits thanks in large part, they said, to the tax package.
Many Republicans who supported that bill said its corporate tax cuts were designed to help the average American. If businesses have more money to work with, the bill’s supporters said, profits will inevitably trickle down to rank-and-file employees in the form of increased wages and jobs. Former U.S. Rep. Ron DeSantis, Gillum’s Republican opponent in the governor’s race, voted for the bill.
Some large corporations in Florida have passed along some of those tax savings to workers. In February, Publix announced it would give its hourly employees a raise to make the chain more competitive with other large retailers, who were doing the same.
But other Florida corporations like Carnival Corporation and AutoNation have directed tax bill-aided profits into stock buybacks and other programs that mainly benefit wealthy shareholders. Gillum’s tax plan is an attempt to make large corporations invest more of their profits in the state they call home.
3. How would Gillum’s plan affect working Floridians?
Republicans and business groups have said Gillum’s planned tax increase would cause companies to shed jobs and cut wages, hurting Floridians.
Academics say there is evidence to back up these claims but not on the scale suggested by conservatives. For one, most small businesses in Florida wouldn’t see any increase in their tax burden under Gillum’s plan. Thanks to a 2012 law, Florida companies don’t pay any taxes on their first $50,000 in revenue.
Studies have also shown that corporate tax rates have a real but limited effect on workers. A 2013 study recently cited by the Florida GOP showed why the U.S. government now estimates that labor pays for 25 percent of corporate tax increases in the long run. But most of the tax burden fell to employees making over $100,000 per year, the analysis showed.
There’s also evidence that cuts to state corporate tax rates actually make workers less competitive. A 2017 working paper by researchers at Harvard Business School showed that corporate cuts increased income inequality in those states in the short term.
4. Does Gillum’s plan have a chance of passing the Florida Legislature?
If the Republicans who lead the Legislature have anything to say about it, no. Incoming Senate President Bill Galvano said in a statement that although he agrees with Gillum that Florida schools need robust funding, there are other ways to do it besides increasing taxes.
“Campaign talk is a lot different from reality. We have to deal with reality in the Legislature. The reality is that increasing the corporate income tax would be a dramatic step backwards for Florida,” Galvano said in the statement.
Some state Democrats aren’t even on board with Gillum’s plan, including key Gillum allies. Congressman Alcee Hastings, who endorsed Gillum way back in the summer of 2017, told the Herald/Times that Gillum needs to rethink his plans to hike the state’s corporate tax rate.
“I’m going to have a discussion with him about some of the substance he offers about corporate taxes. We need to have a sit-down and figure out where he rightly should be in that regard,” Hastings said.
Miami Herald staff writer David Smiley contributed to this report.
This story was updated after publication to correct the name of the Tax Foundation.