Evaluating Potential Modernization of the Florida Tax System: Simulating Shifts In Productivity in the Florida Economy with Changes in the Exemptions and the Incidence of State Taxes Prepared by: Tim Lynch, Ph.D., Director With assistance from: Carter Doyle, ABD, Economist Center for Economic Forecasting and Analysis Florida State University For: The Florida Tax Watch Center for a Competitive Florida and the Task Force Orlando Airport Hyatt Regency Hotel December 12, 2002

Using Regional Economic Models (REMI) to Measure The Potential Economic Impacts on Productivity, Employment and Wages from Shifts in the Structure of the State of Florida Tax System

REMI Uses Three Sources of Employment, Wage and Salary Data The Bureau of Economic Analysis (BEA): Annual data and reported to county level. ES-202 Establishment employment and wage and salary data: Monthly data and to county level. County Business Patterns (CBP) data published by the Bureau of Census: Annual (March of each year) data.

REMI Model (Five Basic Blocks) Output (Final Demands drive this block) Labor and Capital Demands (Labor Demand) Population and Labor Supply (Labor Supply) Wages, Prices,and Profits Market Shares (Share of Local and External Markets)

Recalling a Basic Economic Relationships GDP = Investment + Personal Consumption + Government Spending + Net Exports Hence, an INCREASE in industry (TAX EXEMPTIONS) or consumer taxes rates will: 1.INCREASE PRODUCTION COSTS AND SLOW the economy: 2.DECREASE CONSUMER SPENDING AND SLOW the economy; 3.BUT INCREASE GOVERNMENT SPENDING AND INCREASE the economy (but by how much on net??? This is to be answered on a case by case basis). HOWEVER: A general sales tax increase spread across all consumers and industries with an approximate 20% COLLECTION RATE FROM TOURISTS EXPORTS A LARGE CHUNK OF THE TAX and results in continuing to STIMULATE AND INCREASE the economy despite the dampening effects on Florida residents and industries identified above.

ESTIMATING SHIFTS IN TAX REVENUES AND PRODUCTIVITY FROM REMOVING SELECT SALES TAX EXEMPTIONS PER RANDY MILLER SUGGESTIONS

ESTIMATED POTENTIAL REVENUE FROM REMOVING THE SALES TAX ON SELECT SERVICES

ESTIMATED REVENUE FROM SALES TAX ON SERVICES

Summary and Conclusion: Recalling a Basic Economic Relationships GDP = Investment + Personal Consumption + Government Spending + Net Exports While an INCREASE in industry (TAX EXEMPTIONS) or consumer taxes rates will: 1.INCREASE PRODUCTION COSTS AND SLOW the economy: 2.DECREASE CONSUMER SPENDING AND SLOW the economy; 3.BUT INCREASE GOVERNMENT SPENDING AND INCREASE the economy. CONCLUSION: A general sales tax increase spread across all consumers and industries with an approximate 20% COLLECTION RATE FROM TOURISTS EXPORTS A LARGE CHUNK OF THE TAX and results in continuing to STIMULATE AND INCREASE the economy despite the dampening effects on Florida residents and industries identified above.