Swapping Salary Credit for Lower Communications Tax is an Unfortunate Trade
The Florida Senate is considering a proposal (SB 378) that would repeal the salary credit against the insurance premium tax, and instead cut the communications tax that applies to cell phone and cable TV bills. The idea is give consumers broad-based tax relief through small reductions in their cell phone and cable bills, while also removing a credit that arguably picks “winners and losers” among industries– that is, the insurance industry benefits from the salary credit, while other types of industries do not have a similar incentive for hiring Florida employees.
Upon closer review, however, this does not seem like a logical trade. In its simplest form, the legislature would be giving with one hand and taking with the other. Consumers might enjoy the small break on their cell phone and cable bills, to the extent they notice it at all. On the other hand, eliminating a tax credit effectively increases the tax, so insurers’ taxes would go up, in turn causing a commensurate increase in rates. In effect, the legislature would be trying to persuade us that consumers would be happy paying a little less for cell phones and cable while paying a roughly equivalent amount more for insurance.
Further, there’s no clear job creation benefit to reduced cell phone and cable TV taxes, while the salary credit directly relates to job creation. Unlike some types of economic incentives that governments adopt in hopes that the recipients will create jobs, the salary credit kicks in only when an insurer has actually hired and paid salaries to Florida employees. Those employees, in turn, buy homes, purchase goods and services, pay taxes, and otherwise contribute to our communities– economically speaking, this creates a multiplier effect from the salary credit. It doesn’t make sense to kill off the incentive for insurers to hire Florida employees so the legislature can tell consumers it did them a favor by shaving a few bucks off of their cell phone bills.
Finally, the notion that eliminating the salary credit somehow levels the playing field when other industries don’t receive similar benefits for hiring employees rings hollow. Keep in mind that insurers are subject to both the premium tax and the corporate income tax, with the corporate income tax serving as only a partial offset against the premium tax. The end result is that insurers (and ultimately consumers) pay higher effective tax rates in Florida than other businesses. Compounding this issue in a way that further removes an incentive for job creation doesn’t seem like a fair trade for Florida consumers.
Thus far, the Senate proposal does not have a companion in the House.