March 15, 2005
HB3 passes out of the House

The awful House Bill 3 underwent a few changes but ultimately passed by a 78-70 vote. Here are some of the highlights, such as they are:

[T]he House voted to include insurance companies in the new business tax. Insurers traditionally have been exempted from the state franchise tax and instead pay a 1.6 percent tax on premiums.

But Rep. Patrick Rose, D-Dripping Springs, argued that the companies would be prohibited from passing the business tax to their policyholders.

Lawmakers opposed to the amendment, which passed on a 73-66 vote, said it would make Texas a less-competitive place to do business and could result in higher insurance costs.

That's a pretty slick move by Patrick Rose. The one thing this bill does that I totally agree with is close the ridiculous franchise tax loophole. Closing other loopholes like this one is a continuation of that good work.

Rep. Scott Hochberg, D-Houston, succeeded in amending the bill to exempt diapers and parking at medical facilities from all sales taxes. He replaced the lost $37 million a year by adding sales tax to elective cosmetic surgery procedures.

Another nice move. You'd have to be pretty hardhearted - not to mention politically tone-deaf - to oppose this.

The bill would increase the state sales tax from 6.25 percent to 7.25 percent. It would impose an extra 3 percent sales tax on candy, chips and soft drinks.

And doughnuts! Don't forget the doughnuts!

Bottled water, auto-repair services, car washes and billboard ads would be subject to the sales tax for the first time. There also would be an increase of $1.01 per pack in the cigarette tax.

I continue to maintain that this is nothing but a Band-Aid. It does not address the real inadequacies of our tax system, and it will not produce revenue at a rate commesurate with the growth of our population. I still don't understand why sales taxes on services like legal fees and advertising, all of which were considered in 2003, were never in the picture here. Well, okay, I do understand - money talks, after all. I just don't approve, and I firmly believe we'll be back in a few years to do this all again because the system will still be broken.

A proposed sales tax on newspaper sales was stripped from the bill. Donnis Baggett, publisher and editor of the Bryan-College Station Eagle, said he was "very pleased" by the change.

"It's a cumbersome and inefficient revenue-generating measure," said Baggett, past president of the Texas Daily Newspaper Association.

Who says the MSM has no juice? As Lasso noted, this caused a bit of a stir before it was killed:

Just days before he's to meet with a newspaper publishers' group here, House Speaker Tom Craddick denied that a provision to tax newspaper sales is a punitive response to unflattering news coverage.

"That is not right, you are incorrect," Craddick said Friday, rebutting comments made by three House members, including two Republicans, who said they heard the GOP speaker specifically suggest newspapers be subject to the sales tax.


Craddick said he has "no idea" why only newspapers are being considered.

"I don't know about the other media, they were not in it last time," Craddick said, referring to debate in 2003 and during last year's special sessions when the Legislature faced a $10 billion shortfall. During the last regular session and during at least two special sessions, taxing newspaper sales was briefly considered.

But three House members, speaking on the condition of anonymity, said Craddick is targeting newspapers.

"This is his (mode of operating)," one Republican member said. "He don't like you guys and what you've been writing about him, and this is his payback."

With newspapers facing declining circulation, "why would you want to hitch your wagon to that star," another member asked. "The answer is he wants to punish you for what you've been writing."

[Rep. Jim] Keffer, appointed by Craddick this term to head the powerful tax writing committee, denied the allegations.

"There is nothing sinister or underhanded here. This (newspaper tax) is just one of a number of items being considered," he said. "There is no ulterior motive here. We are trying to fit pieces onto a jigsaw puzzle."

Uh huh. Whatever you say. And speaking of what Keffer says:

Its tough. Its been a tough bill. . . . But Im very pleased with the outcome. Were going to make it a better bill (in the Senate).

One can ony hope, though one might also wonder why you couldn't achieve that in the House. If the Senate does make it better, for some value of the word "better", will the House still vote for it?

Posted by Charles Kuffner on March 15, 2005 to Budget ballyhoo | TrackBack

So what is the progressive/Democratic response to this travesty? Do we hope, like Bush's SS reform package, that it just dies? Or do we hope/expect that the Senate will fix enough things to make it palatable? My own inclination is to hope that it crashes and burns, but then I haven't been following this issue with enough of a critical eye to really understand the implications of doing nothing.

Posted by: Kent on March 15, 2005 12:43 PM

It's clear from the votes on both HB2 and HB3 that the (R) members are more afraid of their own leadership than they are of the voters in their districts. They disgust me.

Posted by: Bren on March 15, 2005 2:35 PM

The voters in their district want property tax cuts. The whole premise of this debate is that not all taxes are created equal and that the state should take on more of the burden and reduce property taxes. Is the tax plan regressive? There may be elements of it that are, the sales tax expansion, but it is also a broad based tax that taxes consumption and many items remain exempted. The cigarette tax can be called regressive but I feel the same sympathy for smokers as I do for people who play the is a tax on fools. There are also a ton of assumptions involved in a tax equity note and tax incidence note and the assumptions have not even been discussed.

That property taxes have become a burden is something both sides have agreed on and is evident in the D's own property tax reduction plan. Many big businesses do get a tax break in the form of property tax relief but I'm not sure how you solve that- separating residential and business property taxes is a tough sell for a number of reasons. Capital intensive businesses do face a burden in moving into Texas.

The killer here, and it was amusing to watch Democrats line up to oppose an "income tax" as their entire base wants one, is the payroll tax. The amended version is superior but at the end of the day there is no fair broad-based business and this one really gets after small businesses. Also, Rose's amendment was a good one as insurance has been pulling that retaliatory tax bullshit for too long.

High income earners did get a reduction in taxes, they also pay the vast majority of taxes in Texas. Why is it that the folks whose children make up the vast majority of the public education system should not pay while others do? Also, do the changes make the system a better one? It may be revenue neutral right now, but have to consider whether this source will be an improving source of revenue or a declining.

It surely will not survive the Senate as is, but this bill is not nearly as awful as you have sold it.

Posted by: snrub on March 15, 2005 4:34 PM

The bill would increase the state sales tax from 6.25 percent to 7.25 percent. It would impose an extra 3 percent sales tax on candy, chips and soft drinks.

Ouch! That works out to a 9.25% general rate in most Texas cities! Worse, it's a 4 percentage-point increase on snacks! I can see the logic behind a "snack tax," but the logic doesn't apply to diet soda, of which I'm a big consumer! I also wonder if less-unhealthy snacks like nuts will be hit with this. They're not candy or chips, but they are "snacks," so the temptation to classify them as "candy" for tax purposes will be high.

A better idea would be to tax saturated fats and sugars according to the "nutrition facts" label. That would accomplish the goal without punishing snackers who are at least trying to improve their eating habits.

As for the other provisions, I'm with you on closing the franchise tax loophole, but I'm dubious about doing it via a payroll tax. This will simply encourage companies to reduce wages, and make layoffs even more attractive. (OTOH, it could also encourage companies to offer more compensation in the form of fringe benefits rather than wages, so it might ease the health-insurance crunch a bit. Or I could always use another vacation day.)

Posted by: Mathwiz on March 21, 2005 4:18 PM