Back to the usual disorder

I'm not sure whether to laugh or cry when I read stories like this about the latest debacle in the continuing saga of How To Balance A Budget When There's No Money. The latest propsal to be floated only to be shot down by Governor Goodhair is a $1-per-pack excise tax on cigarettes.

"It ain't going to happen," Perry said. "It's pretty straightforward -- there isn't going to be a cigarette tax increase in this session of the Legislature. We'll get this budget balanced without having to enhance these revenue sources."

Strayhorn announced her support for a cigarette tax increase while warning legislators that state business tax collections are in a "free-fall," hinting she might increase the size of the state's shortfall.

There's a case to be made against this cigarette tax increase (more on that in a moment), but Goodhair isn't about logic or public policy or solving problems. He's about getting his way no matter what. Every day he finds a new way to lower his stature.

The downside of the proposed cigarette tax increase can be seen pretty clearly in the justifications for it:

A cigarette tax is acceptable because it will give young people an incentive not to smoke, Strayhorn said.

"As a mama and a grandmama I want to deter young people from smoking," Strayhorn said.

[...]

Strayhorn's recommendation was praised by a coalition of health care and family organizations that includes the Texas Parent-Teacher Association, the American Heart Association and the American Cancer Society.

"Raising the cigarette tax by $1 per pack is an easy way not only to generate much-needed new revenue, but also to cut state Medicaid expenditures and to save lives by discouraging smoking," said Kelly Headrick of the American Cancer Society.

The tobacco industry generally opposes tax increases, saying it actually leads to declining revenues by driving down the number of smokers.

Strayhorn revenue estimator James LeBas said a reduction in the number of smokers was calculated in his estimate of how much money the tax would generate.

Fritz Schranck has already noted (here and here) some of the real-life effects of imposing this tax. I don't think too many people will cross the border to buy their own personal smokes - most people don't live anywhere near a state line in Texas - but I'm willing to bet there'd be a lot more organized smuggling, and I'm equally willing to bet that Comptroller Strayhorn's office hasn't factored that in to its equations.

On a more philosophical level, this proposal is Texas' entire tax structure writ small. Just about every single tax we have in this state is a high tax on a small base, which is exactly the opposite of how it should be. We're willing to stick it to smokers because they're a small enough group to pile up on without too much fear of backlash. The same philosophy has led to ridiculously high taxes on hotel rooms and rental cars. Sooner or later, that kind of golden goose stops laying eggs, and you're right back where you started.

All of this comes amid the cheerful news that once again, the trend in tax revenue is down and shows no sign of reversal:

With almost three-quarters of the state's businesses having filed their franchise taxes, collections are down almost 18 percent from last year, she said.

Strayhorn, the state's tax collector, declined to put a dollar amount on the decline. But if that trend holds, it would represent about $348 million less revenue than what the state collected in 2002.

Strayhorn said she will have a more accurate picture of the franchise tax revenues by May 23. Then she will measure that against other tax collections to see whether she needs to change her estimate of how much money the state has to spend over the next two years.

Strayhorn said business tax collections are down in part because of the economic recession. But she said there are hundreds of businesses that have started using a corporate restructuring loophole to avoid paying Texas franchise taxes.

"This should rekindle interest in either stopping the franchise tax free-fall and eliminating the tax entirely and rethink how we tax business in this state," Strayhorn said.

I'm pretty sure there's supposed to be an "or" in between "free-fall" and "eliminating" in that last sentence, but with Strayhorn you can never really tell. In any event, closing the franchise tax loophole (which is that limited liability partnerships (LLPs) are exempt from the franchise tax) was supposedly a major priority of Governor Goodhair. If he can't accomplish a "major priority" with a Republican Lieutenant Governor, a Republican Comptroller, and Republican majorities in both houses, then what exactly is he able to accomplish? Note, by the way, that Speaker Craddick had given up on this task well before last week's Killer D walkout.

Let's close this with a bit of unintentional comedy:

House Appropriations Chairman Talmadge Heflin, R-Houston, said he does not believe Strayhorn will change her estimate. He said the budget will be written by Wednesday.

"If she was going to lower it, she would have done it today," Heflin said.

Your faith is touching, Talmadge. I feel positively churlish that I must remind you that Comptroller Strayhorn gave us nothing but sunny revenue projections until after the November election was over, which caused a few of your colleagues to accuse her of sandbagging. Of course, I'm sure that was just a weensy little mistake that'll never ever happen again.

Posted by Charles Kuffner on May 20, 2003 to Budget ballyhoo | TrackBack