Hey, guess what? There's gonna be a special session!

Get out your hip-waders and prepare to defend your wallets - there's going to be a special legislative session in the springtime to finally address that big unfulfilled Republican fantasypromise of replacing the Robin Hood school finance system with something else.

Lawmakers and others are studying the issue, [Gov. Rick] Perry said in an end-of-year interview with Capitol reporters.

He said he wanted any new funding system to be a "zero sum game," meaning a new system wouldn't raise taxes beyond the level they would increase because of student enrollments, he said.

"We've got 'X' numbers of dollars in our public school budget. ... The intent is to not raise more dollars over and above what our budget would be increasing anyway because of growth," he said.

As for how the state could substitute partly for local taxes and replace wealth-sharing requirements, the governor said, "There's more ways than stars in the sky — or maybe not quite that many, but there are a lot of different options on how you raise revenues to replace" the current system.

"There's service-oriented, there's business-oriented, there's bad-behavior taxes, there's VLTs (video lottery terminals), there's gambling," he said. "I'm not going to name any options that lock me into (a preference) at this particular point in time."

Asked whether an increase in cigarette taxes, advocated by some to raise state funds, would be an example of a "bad behavior" tax, Perry said it would be.

"Smoking's bad behavior. Sure it is," he said.

That's right, all you smokers and other vice-indulgers. It may soon become your patriotic duty to help finance the state government by engaging in that "bad behavior" at an ever-increasing pace. If we can't pay for schools by taxing the bejeebus out of smokers, drinkers, and gamblers (thankfully, no one has yet proposed a tax on sins of the flesh, at least not in this state), we might have to ask clean living folks to pitch in, and then where will we be?

As always, Perry demonstrates that the concept of "Work smarter, not harder" has never occurred to him:

Asked if there was any money source he'd close the door on, Perry said, "I think I agree with the people of the state of Texas that we're not going to have a personal income tax."

Funny you should mention that. A little while ago, Calpundit, who lives in another state with messed up finances, pointed to this article by a UCLA professor who did a little outside-the-box thinking on the subject of state taxes and revenues. His answer is something that would work equally well for Texas.

In 1986, Congress repealed the federal income tax deduction for state and local sales taxes; however, it retained the deduction for income taxes, real property taxes and personal property taxes. Depending upon the taxpayer's tax bracket, the payment of these kinds of taxes can result in a federal income tax savings of up to 35 cents for every dollar paid in these categories. By contrast, the payment of a sales tax results in no federal tax savings whatsoever. The lesson is simple: Repeal the sales tax and replace it with some tax, any tax, that is deductible for federal income tax purposes.

There is real money at stake here. According to the California legislative analyst, the sales tax brought in $22.3 billion for the fiscal year 2002-2003, accounting for roughly one-third of all general fund revenues. Projections show that percentage holding through fiscal year 2008-2009. Over the next six years, California will collect an average of roughly $27 billion per year in sales taxes. If that revenue stream were converted from the sales tax to a deductible tax, the tax savings to Californians would be significant — perhaps as much as $5 billion a year.

Alternatively, the state itself could capture that saving by raising more than $27 billion in deductible taxes. For example, $32 billion raised through deductible taxes would increase state revenues by $5 billion, but because of the federal deduction it would keep the net tax burden on Californians the same.

Note that you can structure things in a completely "zero-sum" way as the Governor wants by simply shifting from one type of tax to another. In doing so, you can generate the same amount of revenue while giving people a tax break, or you can increase revenue without adding to individuals' tax burdens. Doesn't that sound good? Oh sure, you'll shift some of the burden around amongst those individuals, but so what? Any other tinkering, which will surely include "sin taxes", closing loopholes on the franchise tax, and expanding the sales tax, will do exactly the same thing. The objection to an income tax as opposed to any other kind is strictly a doctrinal one. It has no basis in rationality as far as I'm concerned.

Of course, a state income tax is explicitly banned in our Constitution, so the Lege would have to propose an amendment to be voted on. Convincing people to vote for such a thing would be expensive, loud, messy, and most likely doomed to failure. It's also an "only Nixon could go to China" kind of thing in that only the Republicans would have a chance of getting it passed, since the loudest caterwauling would come from their side of the aisle. Governor Perry clearly has better things to do than to risk his popularity on any harebrained schemes like this. So you smokers better not let us down. You're our last hope.

UPDATE: Kevin disagrees with me. I have to say, I don't understand the following at all:

The problem with the income tax is its pernicious nature -- it's withheld throughout the year, it's calculated once a year, nobody ever has a great sense of just what their government is costing them, and it's very easy for legislators interested in growing the administrative/redistributive state to take a "one-time" hit to boost such a tax, knowing the full consequences won't actually be assessed until tax day, well down the road.

Boost the sales tax, on the other hand, and people feel the consequences much more directly. Ditto cigarette taxes, liquor taxes, gas taxes, license and registration fees (ask Gray Davis how that went over!). And they react, by calling legislators and complaining, by limiting tax growth through popular referendum (California), perhaps even recalling their governor (also California). Advocates of democracy and limited government should rejoice over those few states that don't have an income tax.

My paycheck tells me exactly how much is being withheld from me, both for that pay period and for the year to date. I guarantee you, I and everyone else who is subject to withholdings, as well as those who must put aside money for quarterly estimated taxes, will feel the effects of any increases quickly and keenly.

On the other hand, I have no freakin' clue how much sales tax I pay. It's a small amount paid frequently, as opposed to a large amount paid at regular intervals, and there's no running total of my payments, so unless I want to become the mother of all receipt-savers, the information is lost to me. Really, if the sales tax went up by a point or two, would you notice that you're now paying $5.50 for that Big Mac Value Meal instead of $5.40? I can't say I would.

Finally, I have a hard time believing that people would react with pitchforks and torches to a penny increase in the sales tax but not to an equivalent increase in the income tax. I also have a hard time believing that changing our tax structure will cause an orgy of government spending in this state, especially after the slash-and-burnathon that was the 78th Lege. Sorry, Kevin, but I'm not convinced.

Posted by Charles Kuffner on December 22, 2003 to Budget ballyhoo | TrackBack