Report: Florida needs to take a closer look at financial incentives, tax breaks for businesses

A new report from the Florida Center on Fiscal and Economic Policy calls on state policy-makers to evaluate whether or not the many tax breaks and grants afforded to companies by the state of Florida are actually creating jobs.

Since Gov. Rick Scott and the GOP-led state Legislature got to work on creating a business-friendly environment in Florida, little has been done to make sure that such efforts have had a real effect on the state’s struggling economy.

The new Florida Center report (.pdf) argues that Florida “provides huge benefits to selected companies each year, many of which receive little or no examination of their value to Florida’s economy”:

In fact, as recent reports show, many direct payments to corporations from tax dollars fail to produce the number of jobs promised. Often corporations responsible for these “tax funded flops,” as they were called by one Florida newspaper,have escaped any consequences. Despite the acknowledged failures, the state has recovered little tax money paid to corporations that failed to produce promised jobs.

This hands-off treatment of corporations differs greatly from that given to public schools and state agencies that must operate under a new collection of “accountability” mandates from the legislature each year.

According to the report, at least $4 billion in annual breaks have been given to businesses in the state of Florida in the past couple of years.

One part of this $4 billion comes from what policy-makers call “State Economic Development Incentives,” which are “public dollars that are directly or indirectly invested in activities of business.” These incentives are typically either direct grants to select companies or tax breaks. Tax breaks, the report notes, are “credits, refunds, exemptions, and exclusions bestowing preferred treatment to some businesses [that] represent forgone revenue that otherwise would be paid in state taxes and would be available to fund essential functions of government.”

Here is a list of specific “Economic Development Incentives” granted by the state from 2009-2011:

• $250.6 million in Direct Financial Incentives
• $116.9 million in Indirect Incentives to Support Business Investment or Development
• $164.6 million in Tax Credits
• $104.5 million in Tax Refunds
• $4.3 million in Tax Exemptions for Businesses

These incentives add up to about $2 billion each year.

According to the report, “the total, [however], does not include savings to corporations from changes in law– such as weakening of growth management or limiting lawsuits against businesses.”

“Nor does the total incorporate money associated with business friendly changes in rules and regulations,” the report notes. “Also excluded from the total are the untold millions of dollars in business benefits provided from tax money by local governments each year.”

The study also explains that incentives have grown throughout the years, and that lawmakers are currently “seeking an appropriation of $230 million for job subsidies in some programs in the next legislative session, an increase from $93 million in the current year.”

The report also claims that almost $2 billion in benefits to businesses in the state are provided through corporate income tax loopholes:

Not included in the total calculated in the “Portfolios” above are benefits companies gain from the structure of the state corporate income tax. The tax, created 40 years ago with voter approval of a constitutional amendment, provides about $2 billion in revenue each year. But the total could be much more – without raising the 5.5 percent tax rate – if fewer types of businesses were exempt and if state law closed loopholes to prevent the use of tax avoidance strategies employed by large multistate corporations.

Hundreds of thousands of businesses organized in the state are, for the most part, exempt from the state corporate income tax, the Florida Center found. Furthermore, the number of “S corporations” and “limited liability companies” in the state (which are generally exempt from the tax) has “ballooned in Florida.”

“The IRS reported that Florida was home to 601,000 S corporations, more than any other state – about 200,000 more than either California or New York and more than twice as many as Texas,” the report found. “Florida forgoes about $1 billion in potential revenue annually by exempting these businesses from the corporate income tax – $798 million from S corporations and $197 million from LLCs.”

Here is a list of the cost these tax breaks and subsidies to the state from 2010-2011:

• $1 billion from Exempting S corporations and LLCs
• $453 million from Absence of “combined reporting”
• $46 million from Absence of “throwback rule”
• $250 million from Subtractions from taxable income

In total, the economic “incentives” and tax breaks have the state out $4.15 billion.

The report concludes: “Before even more breaks are enacted, the public interest would be served through an open, transparent assessment of current benefits and breaks to ensure that all businesses pay their fair share to fund their community’s public infrastructure, which is critical to ensuring Florida is a good place to live and conduct business.”