Florida is about to give more than $500 million to some of its biggest corporations.
That’s enough to more thandouble state funding for pre-kindergarten, where Florida currently ranks in the bottom 10 in the country. It’s more than the state will spend this year combating toxic algal blooms, fighting the opioid epidemic, buying conservation land, subsidizing adoptions and rebuilding beaches — combined.
The mammoth tax cut is a result of an obscure law passed by the Republican-controlled Florida Legislature last year amid lobbying by companies such as Anheuser-Busch InBev SA, Comcast Corp. and the Walt Disney Co.
Lawmakers said at the time that the tax cut probably wouldn’t amount to much.
“It’s very unlikely that it’s going to be anything substantial,” Rep. Paul Renner, a Republican from Jacksonville who sponsored the legislation, told fellow House members just before they approved it.
The estimated size of the tax cut was revised upward after this story was published online Wednesday.
There’s no way to tell how much any individual company will get, because corporate tax returns are confidential. But only an elite circle of corporations will receive refunds — an estimated 99 percent of Florida’s 2.3 million businesses won’t see a dime.
“It’s a corporate giveaway for the large entities that keep campaign funds filled,” said Rep. Even Jenne, a Democrat from Dania Beach who was one of the few legislators who argued against the tax cut when the Legislature passed it.
The tax break is part of Florida’s response to the “Tax Cuts and Jobs Act,” the sweeping tax overhaul signed into law by President Trump in late 2017.
That law made deep cuts to federal corporate income taxes in two primary ways. First, it reduced the tax rate paid by corporations by 40 percent. Second, it allowed them to immediately write off the entire value of their capital investments instead of spreading the deductions over a longer period of time — a tax break commonly referred to as “bonus depreciation.”
Say, for example, an amusement park builds a $100 million ride. Under the typical rules, they’d be able to take $100 million in tax deductions — but they’d have to spread the deductions over a number of years, which more closely matches the life of the ride. Under bonus depreciation, they can write off the full $100 million immediately.
But the Trump overhaul wasn’t meant to be just tax cuts; it was also designed to be tax reform. So the federal law also reduced or eliminated a number of existing tax breaks. That had the effect of increasing the total amount of corporate profits subject to the tax — which is known as broadening the tax base.
One of the “base broadeners,” for instance, reduces the amount businesses can deduct for interest payments on loans. That’s been a longtime goal of tax reformers on both the left and the right who have for years argued that taxpayers should not subsidize corporate borrowing and incentivize companies to load up on more debt.
Another provision limits the ability of companies to use losses from previous years to completely wipe out their tax payments in future years. A third measure hampers their ability to shift income to offshore tax havens.
The net effect is that the federal government is now taking a much smaller slice of a somewhat larger cake. It has led to enormous savings for corporations: Federal corporate income taxes fell by $92 billion, or 31 percent, last year, according to the Congressional Budget Office, from $297 billion in 2017 to $205 billion in 2018. Collections have inched up some in 2019, although they remain 26 percent below 2017.
But those base broadeners also had the effect of increasing the amount of profits that states can tax, too. So, absent any other changes, states end up taking their same slice of that bigger cake.
That’s why, as soon as the Tax Cuts and Jobs Act became law, business lobbyists fanned out to state Capitols around the country. They immediately began lobbying states to opt out — or “decouple” from — the reform parts of the Trump tax cuts that they didn’t like.
The federal changes had just passed when the Florida Legislature went into session in January 2018, and nobody knew exactly how it would impact Florida’s corporate tax collections. So instead of making any permanent decisions, lawmakers agreed to help corporations by capping the amount of corporate income taxes Florida could collect during its 2018-19 fiscal year, which just concluded.
Under that law, collections can rise no more than 7 percent above the amount economists were projecting at the time; any amount above must be refunded to corporations. What’s more, it will also trigger an automatic cut to Florida’s corporate tax rate for the following year, in order to reduce the amount corporations will pay in 2019-20, as well. The corporate tax rate, which is normally 5.5 percent in Florida, was supposed to reset after that.
During hearings, some legislators laughed with each other about how obscure and boring the bill was. They repeatedly suggested the impact was likely to be negligible. Sen. Kelli Stargel, a Republican from Lakeland, told other senators that she expected corporate tax collections would rise “maybe around 3” percent. The implication was that Florida wouldn’t have to refund anything at all.
Corporate income tax collections ended up rising more than 20 percent. As a result, Florida expects to refund approximately $543.2 million. State economists have until Sept. 1 to finalize the figure, but, at this point, they do not expect it to change.
What’s more, state economists now forecast the subsequent cut to the state’s corporate income tax rate will save corporations another $560 million during the 2019-20 fiscal year.
It’s not clear that some lawmakers understood what they were voting on. Stargel, who sponsored the bill, initially said in an interview this week that she did not think the legislation included refunds. It did.
“I’m not a tax expert,” said Stargel, who chaired the Senate Finance & Tax Committee during the 2018 session. “I’m looking at it as, it isn’t our money. I’m looking at it as, it’s money we’re giving to the corporations to maintain consistency.”
Renner, the House member who predicted any refunds would likely be insubstantial, said the Legislature’s economists and staffers did not expect the federal Tax Cuts and Jobs Act would have such a dramatic impact on Florida’s taxes so quickly. He said lawmakers chose 7 percent for the cap because that has historically been the range that corporate tax collections may fluctuate from one year to the next.
Renner defended the Legislature’s decision to commit to a tax cut before it had any idea how big it would be.
“We didn’t want to have a tax increase,” he said.
But corporations are paying less in taxes overall, when you consider federal and state taxes together. A recent analysis by the Wall Street Journal found that the median effective income tax rate for companies in the S&P 500 has fallen by nearly 6 percentage points since the federal tax law went into effect. The effective tax rate — which reflects what companies pay after all deductions, credits and other breaks — includes state income taxes.
While their actual tax returns are confidential, some companies have recently disclosed to their investors significant tax savings. Comcast, for instance, said its total income tax payments — which includes federal, state and foreign income taxes — fell by 42 percent in 2018 when compared with 2017. Disney said its total tax bill dropped 34 percent. And HCA Inc., which operates hospitals and surgery centers and has historically been one of Florida’s larger corporate income taxpayers, said its income tax payments declined by 28 percent.
Shortly after the federal tax law passed, executives at Hertz Global Holdings Inc., the rental-car company that is headquartered in southwest Florida, told Wall Street analysts that “we do not expect to incur significant cash taxes in at least the next three to five years.”
The Florida Chamber of Commerce, which has urged the Legislature to cut state income taxes in response to the federal tax reform, says it hasn’t heard from any members who are paying more taxes overall. Associated Industries of Florida, which also lobbied for corporate tax cuts, could not identify any such companies, either.
The $540 millionthat the Legislature has committed to refunding will be spread among a relatively small number of companies. That’s because the vast majority of businesses in Florida don’t pay any corporate income tax, thanks to state laws that exempt them entirely or allow them to use strategies that reduce their taxable income to nothing.
According to the Department of Revenue, roughly 22,300 corporations paid some amount of income tax in 2017, the most recent year for which data are available. That represents about 1 percent of Florida’s roughly 2.3 million businesses.
Those taxpayers are typically the very largest corporations. According to disclosure records, internal emails and other documents, the companies that have been lobbying the Florida Legislature to compensate for the impacts of the Tax Cuts and Jobs Act include Anheuser-Busch, Comcast, Disney, Ford Motor Co., Pfizer Inc. and Avis Budget Group Inc.
Holly Bullard, the chief strategy officer of the Florida Policy Institute, an Orlando-based think tank that advocates against corporate tax cuts, said lawmakers could have chosen to use the$540 millionin ways that helped Floridians who truly need it. She noted, for instance, that lawmakers pulled $125 million out of affordable housing programs this year because they said they needed the money for other uses.
“It speaks to the priorities of the Legislature,” she said.
Renner said the refunds were only meant to be a temporary response while the Legislature considers how to permanently respond to the Tax Cuts and Jobs Act. Going forward, he said the Legislature could choose to do something else with the extra revenue.
He said he won’t support spending the extra money. But he also said there are other options. For instance, rather than permanently cutting a corporate income tax that is paid by a small number of big companies who have already benefited from an overall tax reduction, Renner said he would prefer to reduce the sales tax on commercial rent — a tax paid by a wider range of businesses.
“We ought to take a hard look at other avenues for a tax reduction,” Renner said. “I think it’s more appropriate that we look at taxes that would have a broader impact on more businesses.”
Renner is in line to become speaker of the House in 2022. That makes him one of the most powerful politicians in Tallahassee.
And yet, the Legislature has already committed to more tax cuts for corporations.
Earlier this year, during the 2019 legislative session, lawmakers voted to extend the 7 percent tax cap and automatic refunds and rate cuts for the next two years, as well. The bill got almost no substantive debate on the floor of either the House or the Senate.
Once again, economists don’t know how much it will cost. But the savings could be hundreds of millions more.
Corporations also this year persuaded lawmakers to make one permanent change, by “decoupling” from a provision in the Tax Cuts and Jobs Act that attempts to prevent multinational businesses from sheltering profits in overseas tax havens. Economists have no idea how much that decision will save corporations – or cost the state.
And they are pushing for more — including lobbying Florida to let them go back to writing off all of their interest payments. The business lobby has so far persuaded seven other states to completely decouple from the new federal interest limits: Connecticut, Georgia, Indiana, Missouri, South Carolina, Tennessee and Wisconsin. Six of those states are in Republican control; Connecticut’s Legislature is split between GOP and Democratic control.
But Renner said the Legislature could choose to change its mind about the next round of refunds during the 2020 session, which begins in January.
“I don’t think the Legislature ever locks itself into anything,” he said.