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Saturday, January 18, 2003

Musings About Intangible Things-Over at Political State Report, Mr. Florida Politics(D) has a piece on the easing of the intangibles tax in Florida, going on a liberal (but nonetheless true) riff on the regressive nature of the sales-tax-based Florida tax system. A major reason for this is that Florida doesn't have an personal income tax; even Democrats like former Governor Lawton Chiles went to bat against a state income tax amendment. However, the Robin Hood itch did get scratched in the form of the intangibles tax. Dr. Byron's getting an interesting education here. The tax is 0.1% of all stocks, bonds (with the exception of Florida munis) mutual funds, limited partnerships and unsecured accounts receivables. Stuff in retirement plans, like IRAs and 401K (or 403Bs-thank you) are exempt. People get a $20,000/person exemption (thus $40K for marrieds) and don't have to pay a tax if the tab's under $60; thus, singles don't pay if the have less than $80K and marrieds can have $100K before writing a check to Tallahassee. The planned change that will take effect for 2004 will up that $20,000 exemption to $250,000, creating an expected $130 million revenue hit. Note that that's 0.1% of assets, not income. That's not quite as trivial as it sounds. For instance, a 4% state income tax would snag 0.2% of the value of a 5% return of a bond fund; the lower the return, the larger the effect when compared to an income tax. Since this covers money-market funds, it might lead people to put money in bank money-market accounts that aren't covered by the intangibles tax. It will also seem to encourage people to buy more stocks than bonds, since the tax is on the value, not the income. I'm not sure if this is the best way to get money out of the wealthy. You discourage the things you tax, but I don't think investing in something other than a bank account is something we want to discourage. If you want to soak the wealthy, tack a surcharge onto the property tax on big homes or levy an extra percent sales tax on yachts or luxury cars rather than on investments. However, if you want to tax the rich and the rich only, it's hard to do that with "sin taxes" on tobacco and alcohol. To get at the fat cats, you either have to tax wealth or income; this one opted for intangible wealth, for the sellers of tangible wealth (home contractors, car dealers) and bankers have better lobbies in Tallahassee than the stockbrokers. I need to remind myself to ask my stockbroker friend from church if you see people selling stocks just before New Years (January 1 is the measuring date) and letting the money sit in a bank account before reinvesting it. 0.1% might not be enough of a hit to justify the capital gains tax and broker commissions that would come into play on selling a stock, but if I were going to switch investments late in the year, I could see someone doing that.

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