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Governor, McKay at odds over tax cuts

The Senate's leader says social needs outweigh the governor's tax relief goals.

From lowering property taxes to giving tax breaks to investors and back-to-school shoppers, tax cuts have been a hallmark of Gov. Jeb Bush's administration.

Now, in the second half of his term, Bush faces the most serious roadblock yet in his quest to continue tax relief for Floridians _ and it's coming from a fellow Republican.

Senate President John McKay said Wednesday that Florida can't afford to give out about $300-million in tax breaks that Bush recommended for the budget year beginning July 1, including another cut in the intangibles tax on stocks, bonds and other investments, and the popular clothing tax "holiday" in August.

McKay directed senators to use $370-million from those, and other proposed tax breaks, on social services, health care and education programs.

"We have a tight budget year," McKay said. "In a tight budget year, you can't undertake tax cuts if there is not a surplus. Perhaps next year we can do it."

McKay, a former Democrat who earned his college degree in social welfare, has made eliminating homelessness, improving care for the elderly and helping children with disabilities his top priorities as Senate president. However, he has supported tax breaks in the past.

But this year, lawmakers face the tightest budget situation in a decade. Revenues are growing, but not as quickly as in past years. Legislative leaders acknowledge that past spending decisions have tied up money in long-term projects, making that money unavailable for other needs. And Florida faces a nearly $1-billion shortfall in the Medicaid budget, which includes deficits from previous years and unexpected expenses for the 2001-02 year because of a rise in Medicaid clients.

"The responsible course of action right now is to address these (tax) cuts next year once the budget is in better condition and additional funds become available," McKay said.

His stance against tax cuts puts McKay in opposition to Bush as well as House Speaker Tom Feeney, whose chamber already has approved a $222-million cut in the intangibles tax, the third phase of a four-year plan to eliminate what Bush frequently describes as an "insidious" tax on savings.

Working with a Republican-led Legislature, Bush has pushed through nearly $1.5-billion in tax breaks since his first legislative session in 1999. His tax proposals for next year included further reducing the intangibles tax rate, a nine-day clothing tax holiday, and a reduction in the tax rate on hospital outpatient services.

McKay's position won't deter Bush from pursuing his tax relief package, the governor said Wednesday. He described McKay, who has been a golfing partner, as a friend who philosophically supports tax relief. "He's committed to getting rid of the intangibles tax. That's a good sign," Bush said.

In addition, Bush said, the legislative session is only in its second week, and there is still time to negotiate a tax relief package.

Crafting a state budget is a high-stakes negotiating game. The House and the Senate approve separate spending plans, then meet to iron out their differences and produce a final budget.

McKay's position on the tax cuts fueled speculation all day in the Capitol on whether he will hold his ground during the tough budget negotiations or compromise on a smaller tax cut. Opinions were mixed, and several lawmakers were taking the situation in stride.

"It's not the first time we've had differences," said Rep. Sandra Murman, R-Tampa, the House speaker pro tempore. "It sets the stage for a good compromise."

House Speaker Feeney and his budget chairman, Rep. Carlos Lacasa, R-Miami, said the House will hold firm on its tax cut proposals.

Senate Democrats rejoiced over McKay's position. "This is a historic day," said Senate Democratic Leader Tom Rossin. "Gov. Bush's budget proposal was flatly irresponsible in a budget year as tight as this one, and today the Senate recognized that fact."

McKay's comments also come at a time of a growing public relations problem for Republicans. Trying to balance the budget in light of the Medicaid problem and other issues, lawmakers have been considering painful cuts in programs affecting public schools and poor people.

Democrats have had a field day criticizing Republicans, and educators and social service advocates have joined the bandwagon. The Florida Education Association on Wednesday called on Bush to retreat from the past two years of intangibles tax relief as well as this year's proposal, saying nearly $800-million in revenue could be freed for teachers and schools.

"You get tired of being demonized," said Senate Appropriations Chairman Jim Horne, R-Orange Park, who agreed with McKay in opposing the tax cuts this year.

McKay also polled other Senate leaders, and found opposition to the tax cuts, said Sen. Ginny Brown-Waite, R-Brooksville, the Senate president pro tempore.

"Timing is three-fourths of life, and this is not the time to cut taxes when basic needs are being challenged," she said.

At a glance

Tax cuts under Gov. Jeb Bush:

1999: $1-billion

2000: $482-million

2001 (proposed): $313-million

Source: Governor's office