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Revenue diversification or just another tax break to the wealthy?

May 9, 2013
Cape Coral Daily Breeze

To the editor:

The Cape Coral plan for revenue diversification and the tax on your electric bill (PST) is like a reverse Robin Hood. It takes from the poor and gives to the rich.

At the last meeting City Council approved a 7 percent Public Service Tax (PST) on our electric bills. There was a lot of talk about how it was just "the price of a pizza" and we had to "diversify" our City Revenue to make up for the rising and falling home values. We were told the city needs $20 million to keep our city from blight and keep our parks open.

The Public Service Tax (PST) on our electric bills is just the first step in adjusting how the city plans to change how it collects revenue. Following later this year will be two more adjustments to the way the city collects money from us. A Fire Service Tax will be assessed to our properties and a 1 mil reduction in the property tax will take place. We are adding two taxes and taking away one mil from the property tax rate.

While there was a focus on how much we need to diversify the city revenues, there were some critical points lacking from the city's presentations and discussions. I observed the presentations three times.

First, a little background on taxes. There are two basic types of taxes. The first type of tax is one that taxes how much you earn (income tax) or how much your property is worth (property tax). Income and property tax results in an increasing amount of tax revenue from the people who have higher incomes and property values. This spreads the burden of tax more evenly according to ability to pay. The second type of tax is a "flat" tax that is applied to everyone equally. Sales tax and hidden taxes like the 50 cents per gallon in tax on gasoline are examples of "flat" taxes. Flat taxes impact the lower income groups more than the upper income groups. If you think about it, lower income citizens spend more of their income at retail than the upper income groups. Working people buy a similar amount of gasoline per year as the upper income group. But, if you look at the tax collected as a percentage of income, like we do with income taxes, you will see that the lower half of the citizens pay 3 to 6 times more of their income in sales, license and gas taxes when compared to the upper half of the income earners. In Florida that means that the lowest income earners (above the poverty level) pay 13 percent of their income in taxes and the upper income earners pay less than 3 percent of their income in taxes. The scale slides from 13 percent down to 3 percent as your income increases in Florida. This is not a very fair way to collect revenue to run the state, counties and cities. It also hurts the economy of Florida by reducing the disposable income available for businesses. Other states use intangible taxes and state income taxes to try to achieve a more even percent of income to tax rate for all wage groups. Florida is ranked second worst in the nation for collecting the highest percent of taxes from the lowest income groups. The City of Cape Coral is moving revenue from property taxes to a "flat" tax on electric usage.

Think of the properties as shares of the future of Cape Coral. Our City is made up of properties. The property owners have invested in the city for the future increase in property values and the enjoyment of what our city offers. Those who have larger, more expensive properties will see a higher return on their investment than the lower value properties. In the past, the property owners paid for the cost of upkeep of their city with their property taxes. Properties worth more money paid more taxes and expected to get a higher return on their investment. This method was the fairest way for the properties of the city of Cape Coral to support the expenses of maintaining and improving the city and thereby increasing the property values. Diversification of tax revenues to the city should follow the method of property values and charge according to property values instead of "flat" rate taxes that cause more harm to the economy of Cape Coral.

The plan to raise an additional $20 million dollars will impact the economy of Cape Coral. When you take $20 million from the citizens of Cape Coral, they can't spend that money on food, clothes, events, charities, and other purchases that keep our city businesses running. The impact of new taxes on the disposable income of the citizens of Cape Coral varies depending on how much disposable income they have. Obviously, if you are at the lower end of the income scale, you may only have a very limited amount of disposable income and taking $132 per year in additional tax on your electric bill will result in almost all of the money being cut from your spending on Cape Coral businesses. On the other hand, if you are fortunate enough to be in the upper half of the income earners, the amount of the tax on your electric bill will have a much smaller impact on your larger disposable income and how much you spend on Cape Coral businesses. This is just simple economics and math.

The city's presentation shows that the tax on the electric bills will result in 78 percent of the money coming from the Average to Low property owners and only 22 percent of the money coming from the Mid High to High value property owners. This clearly shows that the PST is weighted too much toward the lower half of the income earners and will result in more of a negative impact on the businesses in Cape Coral.

Now let's look at the PST when you add in the reduction of 1 mil in property tax rates. If you are one of the home owners that make up 2/3 of the homes in Cape Coral you will see between a $50 and $100 dollar reduction in your property taxes from the 1 mil. Your PST will cost you between $64 and $93 per year. So most homeowners will see a net tax increase depending on electric usage. But, for the Mid-High to High home owners they will see a much larger $200 to $4000 reduction in their property taxes with their PST only adding $123 to $153 per year. None of the homeowners in the upper half group end up paying more tax. This is quite a gift to the upper income group. Note: There will be another factor of the Fire Services Assessment that is supposed to make the numbers even out somewhat. So far, there have been no details of the Fire Assessment tax other than a line in the city's presentation. The Fire Assessment rate on the city presentation adds another ad-valorem tax to this mix. The Fire Assessment is shown as an additional $118 to $275 yearly tax based somewhat on property value. The city presentation shows this tax is weighted to charge a rate of about 2.36 mils on the lower property values and a lower rate of 1.1 mils on the higher property values. Again, we see another tax that is weighted toward the lower income group that will take more money out of the Cape Coral economy.

It should be noted that the presentation by the City of Cape Coral omitted the impact of the revenue diversification plan on vacant lot owners and business owners. Many business owners pay thousands of dollars in electric bills and the new PST would result in hundreds of dollars per month in additional taxes to our local businesses. Vacant lot owners do not use electricity.

From the presentations by the City of Cape Coral, it would appear that the focus has been solely on how to diversify the revenue without any regard to if the new plan will negatively impact the businesses and citizens of Cape Coral fairly. The city stated that 83 percent of the cities in Florida use a Public Service Tax. That explains why Florida is the second worst in the nation at unfairly taxing the middle class but does not explain why it is a good idea for Cape Coral. Like my mother always said "If all the other kids jumped off the bridge, would you jump off too?"

It was also mentioned that we want to keep the property tax rate below 10 mils to attract new residents. Is that honest? Is it fair to let new residents think the cost of owning property in Cape Coral is less than 10 mils just because we moved some numbers around? Isn't that bait and switch? Wait until they get their first $130 water bill, a PST and Fire Assessment on top of their "low" property taxes. I do not want my city to be known as the Bait and Switch capital of Florida.

Now let's look at the impact on our citizens. Take a retiree on Social Security or young family working minimum wage and just getting by. The new PST of $132 per year for the property owners at the lower value end is not just $132. Remember that Florida is already charging this income group a 10 percent higher tax rate than the wealthiest citizens. If you are living on Social Security in a modest home in Cape Coral, you are already paying about $1,500 more per year in Florida taxes than the high income citizens. The PST now makes it $1,630 per year you have to pay out of your limited budget. At the other end of the scale, the high end property owners are NOT paying the extra $1,500 per year so their share of the PST is only about $200 per year. Does it seem fair that the less you make the more you pay? The fixed income retiree on Social Security will pay $1,632 per year while the homeowners with homes valued at over $250,000 will pay $200 per year. If you look at the big picture, is this fair? Does this help explain why young families and retirees are having to make tough choices about food and medicine just to pay their bills?

Another factor is the increasing property values in SW Florida. We are coming out of the recession and property values are on the way up. At the current rate of increase, the city may not need to seek additional taxes to get the $20 million it needs. If the property values do not increase fast enough, then the city should increase taxes fairly and use a simple, honest increase in the property tax millage.

Changing the way we collect taxes is a very important step that requires careful research and more public input before enactment. I do not feel the City of Cape Coral has done its due diligence in this matter.

The City of Cape Coral should stop the process of tax diversification.

Jim Roach

Cape Coral

 
 

 

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