As coronavirus creates economic uncertainty, lawmakers may push pause button on some tax cuts

by | Mar 10, 2020

With the threat of coronavirus looming over the Florida and national economy, lawmakers are starting to consider the broader economic implications on the state budget. Prior to the spread of the virus and the resulting economic jitters, state economists gave Governor Ron DeSantis enough confidence to call for a $91.4 billion state budget that included a number of tax cuts. But if the economy does start to contract, state coffers will the feel the pinch, and when combined with those cuts, could result in a significant shortfall.

“What we’re going to see now, from here on out and into the summer,” said House Speaker Jose Oliva yesterday, “is probably a difficult economy.”

Oliva made the remark after DeSantis declared a state of emergency, giving him expanded powers to deal with the slowly spreading coronavirus.

Under Florida’s constitution, the state must have a balanced budget. Thanks to former Governor Rick Scott’s financial stewardship, the state maintains a healthy rainy day fund, and the state reduced its debt burden by billions of dollars.

But several factors could jeopardize tax cuts in key economic sectors this year. Florida’s legislative session started two months early this year to dispense with public policy in order to accommodate the politics of a national election cycle. But that also means that lawmakers have to decide on state spending two months earlier than usual, in a year when there’s far more economic uncertainty.

A significant portion of Florida’s revenue comes from sales taxes. When people aren’t traveling to Florida, they aren’t spending money and then we aren’t able to pay for state priorities – like fighting new diseases and making sure we’re prepared for the worst.

The Florida House already passed one tax package that would reduce state revenue by about $115 million. But Senate President Bill Galvano said during a press conference on Monday that money for teacher pay raises and several proposed tax cuts could be trimmed.

One such tax package: HB 7097, which was passed by the House last Friday and, as a whole, would cut revenue by about $115 million. Two of the provisions within that package have drawn criticism: tax breaks for commercial airlines and rental car companies. Cutting the aviation fuel tax is projected to have a budget impact around $8-9 million while the rental car tax break could result in the neighborhood of a $6 million hit to the state budget.

For airlines, that tax break amounts to about a penny per gallon of fuel. It’s the sort of tax break that doesn’t really stimulate additional economic activity – at least not in the short run. And while tax cuts are generally good for Florida’s business climate, they are especially good when the tax relief directly reaches consumers.

With so many unknowns, lawmakers face a difficult decision: cut deeply into state revenue streams as if we’re still riding an economic high, or take a somewhat more conservative fiscal path by scaling back some of the indirectly beneficial tax cuts, such as the tax breaks for airlines and rental car companies, and focus on the essential consumer tax breaks, especially those for people who will use the extra pocket money to keep Florida’s economy moving.

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