MAXIMIZE THE BENEFITS FOR FLORIDA
OF THE FEDERAL ECONOMIC STIMULUS LEGISLATION

By:

Tony Villamil*
April 29, 2002

The Florida economy has started to recover from the twin external shocks of a global recession, and the tragic September 11th terrorist attacks that impacted our large hospitality and aviation industries. As an example of better times ahead, the State's unemployment rate declined to 5.2 percent in March, significantly below the national average of 5.7 percent during the same month.

Florida is today much more resilient to external shocks than in the past. This is due primarily to an improving business climate under Governor Bush, and the growth of a diversified economic base that includes knowledge-based services, defense, and high-technology manufacturing among other "new economy" industries. However, in spite of the attributes mentioned, we are not immune to global and U.S. recessions. Indeed, while Florida has performed better than the nation, and even when compared to the five largest U.S. states since the recession started in March 2001, we are not insulated from externally produced economic slowdowns and shocks like the terrorist attacks of last September. Our rate of payroll employment growth during the twelve months ended this March was relative flat. We need to quickly regain our economic muscle, and thereby continue leading the nation as we have done over the past three years in payroll employment growth. We can do this relatively quickly as Florida's economic fundamentals are sound. Furthermore, Uncle Sam wants to help!

To partly assist in sending Florida into a higher economic growth orbit, we must take full advantage of the bipartisan Federal Economic Stimulus Legislation enacted into law by Congress, and signed by President Bush in early March of this year. Both of our Florida Senators and all but three of our U.S. House Representatives members approved the measure. They know that stronger economic growth in Florida is the best way to expand fiscal revenues for investment in our educational and social systems.

A key provision of the federal stimulus package allows a one-time, thirty percent, depreciation deduction from business income for certain investments like machinery and equipment such as computer systems. This is for investments put into service during three years immediately following September 10, 2001. This makes a lot of sense for Florida and for the nation. Capital spending that generates higher productivity, jobs, and income has been in the doldrums nationwide for the past several years. It is a one-time "shot in the arm" to facilitate regaining our economic vitality as a nation.

Therefore, we urge the Florida Senate to allow, in this Special Session, as Florida has always done in the past, the alignment of the State's corporate income tax code, with the new and retroactive one time faster depreciation provision of the Federal Stimulus Law. Failure to do so will deprive our State of an important economic stimulus component contained in the federal legislation. Furthermore, as other U.S. states happily partake of the federal stimulus, failure to mirror the Federal Corporate Tax Code changes place Florida's business climate at a competitive disadvantage relative to other states for attracting and retaining job-creating enterprises.

Finally, not "piggy backing" Federal Corporate Tax Law changes into the Florida code, increases the "dead-weight" cost of tax compliance, by forcing Florida corporations to keep two sets of books, one for the federal corporate income tax code and one for the State. This does not make sense at a time of growing competition for jobs-creating business!

The Legislature needs to make the change in State law retroactive to take advantage of this federal "economic stimulus gift" for Florida. I urge the Florida Legislature to agree to this change. Otherwise, we would be missing an opportunity to help "quick start" the strong Florida economic engine. We are in a highly competitive global marketplace and stimulating capital investment in equipment and machinery is a key factor of long-term economic growth and competitiveness. Let's grow the economic and fiscal pie for the benefit of all Floridians!


* Tony Villamil is Chief Executive Officer of The Washington Economics Group, Inc., and Chairman of Gov. Jeb Bush Council of Economic Advisors.