March 22, 2005
Strayhorn criticizes HB3

Comptroller Strayhorn has released a letter (PDF) which criticizes HB3 for not coverning the proposed property tax cuts with alternate revenue.

In Fiscal Year 2006, the bill raises $2.8 billion in new state taxes with no local property tax relief. In Fiscal Year 2007 - the first year of property tax reduction - the property tax reduction of $5.8 billion exceeds the offsetting increase in state revenue of $4 billion by $1.8 billion. In Fiscal Year 2008, the property tax reduction exceeds state revenues by $2 billion. In 2009, the imbalance is $2.3 billion and the imbalance continues to grow each year thereafter.

The problem with the Bill not balancing is entirely in Article 2, which is the business tax section of the Bill. The Bill's revised business tax is designed to give taxpayers a choice between a payroll tax base and a franchise tax base. The Bill does not provide for a minimum tax. Taxpayers will simply plan around the tax as easily as they do the current franchise tax. For those firms currently playing the franchise tax, and given the tax rates used for the franchise and payroll components, providing taxpayers with a choice of tax bases greatly reduces their tax liability. New firms would be added, but they too would have the same choice of tax bases and therefore their inclusion would not close the funding gap. Additionally, there are various ways of avoiding the tax - such as replacing existing staff with leased staff.

(Note: as the document was scanned into a PDF, I cannot copy and paste from it, so the above is a transcription. Any variations from the original text are unintentional.)

Via Pink Dome. Now we all know about Strayhorn's aspirations to higher office, and there's been little she loves more than bashing Governor Perry for his many sins (though this letter here is very straightforward and doesn't mention the Governor), but I think her point about ways of evading the tax is well taken. The whole reason why we need to reform the franchise tax is because any firm that wants to can avoid paying it. Replacing it with another tax that can be just as easily beaten by legal maneuvering is pointless. Make it simple, make it comprehensive, and make it applicable to everyone who should be paying it. Let's hope the Senate is up to the challenge.

UPDATE: Andrew D has more.

Posted by Charles Kuffner on March 22, 2005 to Budget ballyhoo | TrackBack