It may be a long shot, but state lawmakers want to put extra dollars into the pockets of Florida’s working poor — about $250 per family each year.
That may not seem like much. But it’s enough for 100 gallons of gas, 1,000 diapers or a few weeks of groceries, according to supporters of a plan to provide a tax rebate to lower-income workers.
The idea has been discussed for years. And the proposal is largely backed by Democratic lawmakers.
But the measure had its first hearing ever in Tallahassee earlier this month, in a Senate committee chaired by a Republican who also happens to be the chairman of the Florida Republican Party.
“There’s no question that something like this would help the working poor and it encourages people to move forward with jobs and be productive members (of Florida’s economy),” Sen. Joe Gruters said, after his Commerce and Tourism Committee held a workshop on the proposal.
Launching such a plan has challenges
But there are several significant barriers to the proposal, which would base the Florida tax rebate off the federal Earned Income Tax Credit.
The federal tax credit already provides more than $5 billion in income-tax reductions and refunds to 3.1 million low-income Florida households. The credits amounted to more than $2,500 for each family or individual who qualified in 2018.
Twenty-nine states have their own tax credit or rebate programs, built off the federal tax credit. But each of those states has a state income tax, allowing them to more easily adjust their state taxes based on the federal tax credits for each low-income household or individual.
No state without a state income tax has, thus far, been able to extend the federal tax credit. Washington, which does not have a state income tax, approved a rebate measure more than a decade ago, but has yet to start it.
Florida’s lack of a state income tax will present several challenges for implementing a tax rebate for the working poor, including how to get a check to each qualified taxpayer.
The second challenge will be the price tag for the program, which is estimated at more than $500 million a year. It’s based on providing a state tax credit equal to 10 percent of the federal tax credit. A 5 percent state tax credit would carry a $250 million cost.
Gruters, a Sarasota tax accountant, cited the cost as the most difficult obstacle to overcome if Florida moves forward with the proposal.
“I think the real issue overall is the actual cost of the program, not the implementation,” he said.
How will lawmakers respond?
Nonetheless, supporters of the state tax rebate say they will try to advance the proposal in the 2020 Legislature, which begins in January.
Sen. Jose Javier Rodriguez, a Miami Democrat, has filed a bill (SB 254) that calls for a study by the state Department of Revenue and state economists about how the tax rebate could be implemented in Florida and its impacts on taxpayers as well as the state budget.
“The earned income tax credit at the federal level is an anti-poverty tool that has bipartisan, if not universal support,” Rodriguez said.
Rodriguez says creating a state tax rebate for the working poor is one way to address the “regressive” nature of Florida’s sales-tax heavy tax system, meaning poorer Floridians pay more of their income in taxes than wealthier Floridians.
A 2018 report from the Institute on Taxation and Economic Policy ranked Florida 48th among the 50 states in terms of its regressive tax structure.
The study showed that 20 percent of Florida households earning $19,000 or less a year paid 12.7 percent of their earnings in state taxes, compared to the top 1 percent, earning more than $549,000 a year, who paid 2.3 of their earnings in state taxes.
Another argument for the state tax rebate is that it would reward Floridians in low-wage jobs who are working hard but having difficulty paying bills or making their rent.
“State (tax rebates) build on the success of the federal credit by keeping people on the job and reducing hardship for working families and children,” said a March report from the Center on Budget and Policy Priorities, a non-partisan policy group in Washington, D.C.
“Many working families with children struggle to make ends meet on low wages. A full-time job at the federal minimum wage yields about $15,000 — often insufficient income for a family to afford basic necessities,” the report said.
“The EITC, a federal tax credit for people earning low and moderate pay, boosts income and improves the outlook for children in low-income households. It also helps women and communities of color — two groups that disproportionately work in low-wage jobs — see the fruits of their labor and share more fully in economic growth,” the report said.
Millions of families get federal tax credits now
The federal tax credit plays an important role in Florida, with 3.1 million households qualifying for the credit, representing 7.3 million individuals and 2.9 million children.
A third of Floridians paying federal income taxes receive the federal tax credit. At least 20 percent of federal taxpayers in each Florida county qualified for the credit, with some counties exceeding 44 percent, according to the Florida Policy Institute.
But supporters of the state tax rebate plan also note that only about 80 percent of Floridians who are eligible for the federal tax credit actually apply for the tax break. It means more than $1 billion in federal tax credits go unused each year.
The federal tax credit is based on the size of the family and its earnings.
For instance, a single mother with two children in 2018 could earn up to $46,703 and qualify for a tax credit up to $5,828. The credit offsets any federal taxes owed and if it exceeds the tax liability, the family would receive a tax refund.
How to implement a state tax rebate based on a federal tax credit
Aside from the cost for the program, Jim Zingale, executive director of the Florida Department of Revenue, outlined a series of issues his tax-collecting agency would face in implementing a state tax rebate based on the federal tax credit.
For one, Zingale said his agency would have to arrange to get federal tax data in order to set up a state tax rebate system.
He also noted Rodriguez’s bill wants the tax rebate limited to Florida residents, defined as someone who has lived in the state the prior year. But Zingale said it is difficult to define a resident, noting many may lack common indicators such as a driver’s license or voter registration.
Other issues with the tax rebate could be “tricky,” Zingale said, including mailing out rebate checks. “Finding the address to mail that rebate check back is not as easy as one might think,” he said.
Sen. Victor Torres, a Democrat, said many residents in his Central Florida district, which includes Osceola County and a portion of Orange County, could benefit from a state tax rebate based on income.
“This hits home…that extra buck that comes into your pocket helps your family,” Torres said. “It’s not a handout. They’re working. They’re working very hard too. Maybe more than one job, two or three jobs. How can we make it better for them?”