April 07, 2004
Onward, then

It appears to be official now that Governor Perry really truly will call a special session on school finance reform later this month even though he still doesn't have anything resembling the kind of consensus he claimed to want as a prerequisite. That doesn't stop him from claiming consensus anyway.

Under the governor's proposal, residential property would be taxed by local school districts, while business and commercial property would be subject to a new state property tax. The local tax rate for residential property would drop 25 cents to a maximum rate of $1.25 per $100 valuation, while the new state tax rate would initially be capped at $1.40 a decrease of 10 cents.


Mr. Perry said Tuesday: "Business leaders I talked to as late as yesterday in Houston were very supportive" of the proposal. He called it a "constitutionally linked" plan that would treat residential and business property taxes similarly even though one would be taxed locally and the other taxed by the state.

I guess he didn't talk to these business leaders.

"It doesn't make sense to lower property taxes for homeowners and leave property taxes high for businesses if what we want to do is encourage businesses to make investments in the state," said Bill Allaway, president of the Texas Taxpayers and Research Association, which represents 250 companies of various sizes.


Perry insisted that his plan is gaining support, but he didn't name any businesses that are publicly backing it. Last week, 17 of the state's most influential business and trade groups sent a letter to House and Senate education chairmen opposing the idea of splitting the business and residential tax rolls.

"The split roll will inevitably lead to higher property tax burdens on businesses, discouraging new investment and stifling job creation," the letter stated.

The signers included several general business groups along with trade organizations representing electric companies, oil and gas concerns, bankers, Realtors, electronics firms and wholesale beer distributors.

Sounds like an awfully big segment of Perry's personal board of directors to me. As noted here, the Texas Association of Business is also opposed to this plan.

One of the ideas Perry is now pushing (having cribbed it from Comptroller Strayhorn) is a cigarette tax hike. Via Mac comes this example of a one possible shenanigan we may have to look forward to:

[Alabama Governor Bob] Riley's proposed cigarette tax. It would raise state taxes from 16.5 cents to 56.5 cents per pack but give refunds to major tobacco companies, which under a 1998 national lawsuit settlement pay the state about $100 million a year.

The net tax increase, if passed along to consumers, would be about 9 cents per pack on major cigarette brands, which would raise $30 million a year. The full tax of 40 cents per pack would be imposed on generic cigarettes made by smaller companies that don't make settlement payments, which would raise $10 million a year.

The state of Texas has a big tobacco settlement as well, so we could do something like this. I'm guessing the reason for doing it that way instead of a single flat tax is so that the state can hold onto some of that cash for awhile and earn interest on it before paying the refunds. It'd be interesting to get an economist's best guess as to how each of these methods would affect demand. Another possibility is to allow for some accounting dodges, where the revenue is booked in one fiscal year while the refunds are paid out in the next. Seems to me the abuse potential is pretty high, but I doubt that'd be a concern to anyone.

Posted by Charles Kuffner on April 07, 2004 to Budget ballyhoo | TrackBack