February 13, 2006
Still skeptical of the TTRC

Time to check in on what the Texas Tax Reform Commission is up to as it continues its statewide tour. Eye on Williamson notes that there's a lot of mixed signals out there.

The commission has rejected charging the franchise tax on company payrolls because it might discourage companies from taking on new employees. [TTRC Commissioner John] Sharp, however, has not been clear about just how the franchise tax money would be collected.

Far from engendering support, such vagueness has given business owners pause, said Will Newton, spokesman for the Texas office of the National Federation of Independent Business. With a membership of more than 34,000 representing a broad base of small businesses in Texas, the federation has not signed on to the franchise tax or any plan so far, Newton said.

"Our message is that, generally speaking, small businesses already pay the franchise tax," Newton said. "It makes my heart proud to know that other businesses are saying they are willing to come to the table and pay their fair share, but we'll see. (Sharp) needs to deal the hand, and then I'll take it to our membership and see what they think."

Newton and others worry that businesses that have avoided paying the franchise tax are working overtime to protect themselves.

"In the last (legislative) session, real tax reform was killed by a perfect storm of lobbyists," said Michael Johnson, a Republican precinct chairman from Harker Heights, who addressed the commission at its meeting Jan. 18 in Belton. "What I heard at the meeting in Belton was a bunch of lobbyists for businesses saying an equitable tax system will exclude them."

That's been my fear all along as well. I just have a hard time seeing Rick Perry fight - really fight, because Lord knows there'll be real resistance - to this kind of franchise tax reform. It's just not who he is, and there'll be that nice fat, juicy surplus sitting there, just begging to be squandered.

Further, the more of these stories you read, the more you see talk of sales tax hikes pop up like prairie dogs. With an income tax being an article of faith and a real franchise tax being a hothouse flower, what else is there to talk about? Never mind the fact that it's the same old regressive non-solution that failed every other time it was dragged out as a way out of this morass. What's truly mind-boggling is how disconnected from reality some of this sales tax talk is becoming:

Sharp said there also are some members of the commission who support expanding the state's sales tax to include industries that are currently not subject to it, and increasing the sales tax rate. Currently set at 6.25 percent, members of the commission have discussed raising it as high as 11 percent.

"From where I sit, raising the sales tax by that much would have to mean some other funding mechanism will have to be done away with, or that will be overburdensome," said Karr Ingham, an Amarillo-based economist. "It's not unfeasible to do that. Raising money through sales tax is more broad-based than raising money through property taxes, (but) you will run into some resistance. We're bound here in Texas by what the courts will permit the Legislature to do."

Earth to Karr Ingham: It's completely unfeasible to raise the sales tax to 11 percent - a rate that, let's not forget, would mean a 13% tax in Houston. And you wouldn't get "some resistance" to it, you'd get a full-on storm-the-Bastille revolt, led by the senior citizens who'd feel it the worst plus anyone who didn't have the kind of million dollar mansion that would be needed to get a net tax reduction. I'm not sure what amazes me more, that Sharp would admit to such a thing, or that there exists a professional economist willing to comment on the record about it as if it were a realistic policy proposal.

Latter link also via Eye on Williamson. The TTRC wraps up its schedule of hearings on Feb 28, so maybe then we'll finally find out what their recommendations are. Then the real fun will begin. Stay tuned.

Posted by Charles Kuffner on February 13, 2006 to Budget ballyhoo | TrackBack

Ingham didn't say that raising the sales tax was not unfeasible, he said that IF the sales tax is raised, it would not be unfeasible to lessen the burden elsewhere. That doesn't seem particularly disconnected from reality.

Posted by: Nikki on February 16, 2006 10:18 AM

Just ran across the critique of my comments here. The ONLY time I recall commenting on this issue, I did anything BUT suggest I favor an 11% sales tax rate. I suggested that IF the sales tax rate was raised that high, then property taxes should be done away with altogether (not gonna happen); otherwise, we will be stuck with the high sales tax, and other taxes on which 'relief' may have been temporarily given, but that are subject to upward creep. And then, there we would be -- ludicrously high taxes across the board.

Posted by: Karr on May 6, 2006 4:57 PM