May 01, 2006
Halftime at the special session

We're at a bit of an intermission in the special session (just past it now, actually), what with the House waiting on the Senate and the Senate getting started on its business. That makes this a good time to review what's gone on so far. Let's have a look.

The Texas Observer, hardly a shill for the bidness lobby, says that the TTRC tax plan may not be great, but it could have been much worse.

The Sharp commission's plan eschews any increase in the general sales tax. Sales taxes, which hit lower-income people harder than the wealthy, were ardently pushed by GOP legislators during last summer's two failed special sessions. A 1 percent increase to Texas' already high 6.25 percent sales tax would make it the highest sales tax in the nation. (Mississippi, Rhode Island, and Tennessee now hold the lead with 7 percent rates.)

Even the progressive-minded Center for Public Policy Priorities (CPPP) puts in a good word for the Sharp commission. Although critical of several features of the commission’s final product, the progressive Austin-based think tank nonetheless hails the task force’s efforts. It "may have designed the best new tax proposed to date," CPPP declared in a statement. "[A]s a basis for legislation," the organization adds, the report is a document "that Texans can applaud."

Yet, charged as it was by Gov. Rick Perry to produce a tax scheme that was both "revenue neutral" and lacking a personal income tax, the Sharp commission's plan was destined from the outset to be cramped. Despite his status as a Democrat, Sharp has not won many party members to his cause, says Rep. Garnet Coleman, a Houston Democrat who cites a number of misgivings about the plan. Among them, it fails to provide new money for Texas' under-financed schools and underpaid teachers.

You can see here the basics of the arguments made in favor of HB3 by Reps. Mike Villarreal and Donna Howard, and those against by Reps. Rick Noriega and Garnet Coleman, whose recent op-ed I'm going to quote from:

The House plan took $2.3 billion from a short-term state surplus to pay for property tax cuts this year, and official estimates indicate the plan could drill a $10 billion to $11 billion hole in the state budget over the next five years. Ironically, the same leaders who support this plan have warned there really is no surplus given unmet state budget needs that don't even include restoring $3 billion cut in 2003 from teacher health insurance and proven educational improvement programs.

The Texas school population grows by 70,000 kids a year. Texas teacher pay is $6,000 below the national average and a new study warns that almost half of Texas teachers are considering leaving the profession when we already have a severe teacher shortage. The price of gas is crippling school transportation budgets. This year, the Houston Independent School District will pay $7.5 million more for electricity, $5 million more for health insurance and $2.5 million more for property insurance coverage - the same list of expenses we all face.

We all want a tax system that closes loopholes to make everyone pay their fair share, but those tax dollars could be used both to benefit our schools and provide property tax relief. Instead, by cooking up a witch's brew that falls billions short of a being balanced tax swap, the leadership's budget policies could endanger both education funding and other critical state needs like health care, higher education and public safety.

That's how this battle will be fought in the fall, between those who say "We cut your property taxes!" and those who say "They didn't provide a dime for the schools!" (See here for an example.) Since both statements are true, it'll be a question of priorities for the voters. And yes, I know, there's also the Disgruntled Conservatives who are Upset Because They Instituted A New Tax, and who are Threatening To Stay Home In November. I'll believe that when I see it, and I say that as someone who really really wants to see it.

Finally, here's another Observer article on The Tax That Dare Not Speak Its Name. Everybody talks about the Bullock Amendment, but did you know this?

Bullock's amendment requires that two-thirds of all the revenue raised through an income tax go toward cutting property taxes. The other third must fund public schools. That's in the constitution. So legislators couldn't raid income-tax revenue for any other spending goodies unless they first amended the constitution (that ain't gonna happen). Lawmakers couldn't just hike the income-tax rate willy-nilly, either. Bullock's amendment specifies that once implemented, a state income tax can't be increased unless voters approve a rate hike at the polls. It would be the only tax over which the public had control. (In fact, a 2003 Scripps-Howard poll found that when respondents were told of those constitutional requirements, 52 percent said they would support a state income tax.)

A state income tax would be a cash cow. In 2004, Lavine and researchers from a Washington, D.C., think tank took the Kansas income tax formula and applied it to Texas. (Kansas is a nice example because it's around the national average on most measures of revenue and spending.) The Kansas system levies a 3.5 percent tax on people who make up to $15,000 a year, 6.25 percent on $15,000 to $30,000, and 6.45 percent on income more than $30,000. In Texas, that would bring in at least $18 billion annually for the state. That means two-thirds (or $12 billion) would go toward property tax cuts - enough to reduce your property tax bill by more than 66 percent (twice the reduction provided by the governor's current plan). The remaining $6 billion raised by the state income tax would go to additional funding for public schools - enough to cover teacher pay raises, new textbooks, facility improvements, English as a Second Language courses, you name it.

Who would pay for all that? Mostly, families with higher incomes. According to CPPP, if we instituted the Kansas system to cut property taxes, 60 percent of Texas households would receive a net tax cut. The poorest 20 percent of households would realize a reduction in their state taxes of more than 6 percent. A family that earns $50,000 a year and that owns a house would pay roughly 1-2 percent less in state taxes. Only the richest 20 percent of families (those earning about $100,000 or more) would see their overall state taxes increase, but by a mere 2 percent. Because their incomes are so high, that slight increase would generate a lot of new money for the state.

So there it is: An income tax such as Kansas' would provide $6 billion in new funding to educate our kids, and in exchange, most Texans would receive a tax cut.

The linked graph measures against percent of income, so it's a little misleading at first. Without knowing what the values on those quintiles are, you can't really judge how much this will hit you personally. I'd expect to do a little worse, but in the long term, who knows? The beauty of this approach is that your tax won't rise any faster than your income, which should address this objection to property taxes.

It's all academic, of course, at least this time around. Thanks to Greg for the Coleman link.

Posted by Charles Kuffner on May 01, 2006 to Budget ballyhoo | TrackBack

I think it's disingenuous to use the argument "we didn't provide a dime for public education." Of course we did. This money generated under the new business tax is not going for highway construction or CHIP or Medicare. It's going for education. And it's going to cost business $5 billion.

Certainly it would be more accurate to say we are using a tax swap and not creating new tax dollars. It's accurate to say the business didn't provide NEW or ADDITIONAL money for education, just as the Williams amendment on CSHB 2 is unlikely to provide any additional dollars for education, either.

This business tax is for property tax relief. But, face it, our school dollars come from property taxes. So I sense a disconnect when it comes to saying we're not doing anything for education here. Even if the parties spin it otherwise... both Rs and Ds.

And, yes, we will provide new money for education under CSHB 1. And it will come from surplus. Which means we will be in a nice large hole in 2007. So if you want to argue that we should have used some of that business tax to pay for new ed initiatives... Well...

But such is life at the Capitol. Spin spin spin.

Posted by: Kimmy on May 1, 2006 11:34 PM