TALLAHASSEE — Florida's threadbare state budget, now cut by more than $8-billion since July 2007, has Republican legislators talking about what until now was reviled as heresy: taxes.
On the agenda for the March regular session is a discussion of a cigarette tax increase of between 50 cents and $1, taxing all Internet sales in Florida, eliminating sales tax exemptions and closing tax loopholes.
There is no agreement on whether to impose any of these taxes. But tax-averse legislators — who resisted talk of taxes for nearly 20 years and campaigned on promises of tax cuts — have reached near-agreement on one thing: Two years of budget cuts culminating in last week's $2.4-billion reduction have hit bone. Worse, they say, is a $3.5-billion shortfall next year that they'll have to fill to avoid deeper cuts to education and health care.
"It's as good as it's ever been for considering new revenues," said Rep. Bill Galvano, a Sarasota Republican who chairs the House Rules Committee. "In the past, in this chamber, it was almost like a sacrilege to suggest that. But at this point, I think everyone is open-minded."
First, lawmakers hope that the federal economic recovery package will steer billions in federal aid to Florida to help with rising Medicaid, food stamp and other public assistance costs, pay for public works projects and provide seed money to encourage more business growth in Florida. Beyond that, legislators say it's time to start looking for pennies in the drawer.
"The gravity of the current fiscal situation is clear," Senate President Jeff Atwater, a North Palm Beach Republican, said on the opening day of the Legislature's two-week budget cutting session. "We are simply spending money we do not have."
Atwater ordered the Senate to lead the search for new revenue and include "a review of our tax system." He has created a select committee to review ways to stimulate the economy as well as examine hundreds of sales tax exemptions — on food, rent, drugs and services — to determine which continue to make economic sense and which should be repealed.
House Speaker Ray Sansom, R-Destin, believes that some tax exemptions will be reviewed. He will only consider tax exemptions that, if removed, will not hurt business.
"We have to look at them," he told the Times/Herald on Friday. "We haven't made any commitments about any additional revenue, but we also know these are uncharted times."
Even in the more conservative House, legislators are thinking the unthinkable.
"The party line still is 'let's not increase taxes,' but we are in a once-in-a-lifetime situation with a very serious economy and critical services have to be met," said Rep. Carlos Lopez-Cantera, a Miami Republican. "There will be discussion, and no ideas will be suppressed."
In the past, Republican legislative leaders have gone through procedural contortions to keep reviews of tax exemptions, loopholes and tax increases off the regular session agenda. Repeated attempts by former Senate President John McKay to persuade the Legislature to review but not change hundreds of sales tax exemptions were rejected as an indirect call for a tax on services.
This year, several bills have already been filed to raise the cigarette tax, close loopholes in corporate real estate and income tax transactions, and eliminate sales taxes exemptions that are either outdated or no longer serve their purpose.
Gov. Charlie Crist, like the leaders in the House, reluctantly acknowledges that the tax debate is needed. "I want to keep an open mind as it regards some of those exemptions and other issues," Crist said.
Even Florida's business leaders are on board with a vigorous tax review. Former House Speaker Allan Bense, who is incoming vice president of the state's business development agency, Enterprise Florida, called on lawmakers last week to review tax exemptions to make sure they are serving their intended purpose.
Randy Miller of the Florida Retail Federation welcomes a review of the sales tax exemptions. "Bring it on," he said. "I think we can defend them. If we can't, we'll take them out."
Retailers, however, are encouraged by the willingness of Sansom and Atwater to back a sales tax on all Internet sales. Florida is losing hundreds of millions of dollars in sales tax revenue from consumers who buy goods online, Miller said. If Congress allows states to apply the tax to interstate transactions as part of the federal economic stimulus package, Florida legislative leaders appear ready to support it during the regular session.
"The Legislature needs to come to the realization that more and more people are buying things on the Internet and that trend is not going to stop," said Sansom, who has in the past opposed the Internet tax.
The change in attitude was inevitable, said Rep. Scott Randolph, an Orlando Democrat.
Because Republicans "funded education on the back of property taxes for the last six years'' by reducing the state share and increasing the local share, "they are boxed in," he said. "They have no choice except to look at the revenue side."
Sansom, Atwater and other leaders said they want to be careful not to raise taxes that will increase the burden on already struggling taxpayers or businesses faced with layoffs.
"Tax increases diminish economic growth, especially in a recession," said Dominic Calabro, director of TaxWatch, the business-backed tax research group. Still, he said, there are inequities in the tax system.
Why, he asked, are commercial pest control and lawn care services taxed while residential services are not? If you can't afford residential pest control and have to rely on bug spray at the grocery store, you pay sales taxes on it.
The challenge before legislators will be to "find more innovative ways to recover funds Florida is lawfully entitled to, or is it going to add more burdens to people," he said.
"It will take time and effort."
Mary Ellen Klas can be reached at meklas@MiamiHerald.com