May 07, 2006
Sunday tax stuff

The Chron does a "who wins and who loses" story on the new business tax plan. This is of course useful information, for reasons political and not, but I'm always wary of stuff like this:

Lenin Juarez and Terri King have a partnership in Houston that runs Action Gypsum Supply Co., a drywall supply firm with $30 million a year in sales. They would pay state business taxes for the first time under the bill. The company leases its lands so no property tax relief is expected.

Juarez said he can afford the $33,000 a year now, but it might have killed the business when they started it three years ago.

"Three years ago, it would have been a significant impact, an onerous impact," he said.

King said she worries about how the firm will pay the tax when construction goes into one of its cyclical slowdowns. "I don't know that we'll be able to absorb it."

Bill Sadler owns two Houston restaurants: Arturo's Uptown Italiano and Beso. He said the new tax will cost him $30,000 to $50,000. One restaurant is very successful and can easily pay the tax, he said, but the other is a "labor of love."

"It could put me in a position where I don't think it's worth paying on a marginal restaurant, which would put 60 people out of work," Sadler said. "There will be some businesses closed because they are just scraping by."

Any tax is going to affect behavior, and any expense is going to affect profitability. The question is not whether a given business can handle the new tax, but whether it makes for good public policy in the aggregate. Does it provide a sustainable source of revenue for the state without being too onerous for too many businesses? There's some subjectivity in the answers to those questions, but they should not be affected by the answer given by any one business owner.

And for those of you who think having any kind of tax at all is a bad idea because it just contributes to the growth of government, read this. Supply and demand works in funny ways sometimes.

Back to the Chron story, this is more of concern:

[Bill Allaway, president of the Texas Taxpayers and Research Association.] said business support for the plan could evaporate if the Legislature does not guarantee a future reduction of public school property tax rates to at least $1 per $100 of valuation. He said that level of property tax savings is needed to offset the new business taxes.

"Almost everybody did their calculations at a dollar," Allaway said.

That of course does nothing to quell concerns that this promise of property tax relief will have potentially dire consequences elsewhere in the budget, none of which have had much of a public airing as yet. It also adds fuel to the belief that the whole property tax cut promise is a cynical game being done to get past the 2006 election, since tax rates will have to go back up to account for the gap in revenues. That's the subject of Rick Casey's column, which recapitulates a lot of the issues that have been raised so far.

On a side note, Clay Robison examines the Democrats' proposal to suspend the gas tax for 90 days and has a complaint.

The Democrats don't expect to win a "gas tax holiday." But they are getting some "pro-consumer" publicity and an opportunity to portray the Republicans in power as anti-taxpayer for refusing to advance their idea.

They also are being inconsistent.

The Democrats' major complaint during the ongoing special session on school finance has been that Gov. Rick Perry and other GOP leaders have been advancing a plan to cut school property taxes without raising additional money for education.

Yet, their proposal for a 90-day gasoline tax suspension would cost Texas' public schools about $175 million. That's because the state constitution dedicates one-fourth of gasoline tax revenue to education. The other three-fourths goes to highways.

The Democrats say the lost money could be recouped from the $8.2 billion budgetary surplus or through federal transportation dollars.

But it is pointless to transfer funds around if, as the Democrats say and I believe, public education already is underfunded in Texas. Use the surplus to boost, not replace, money for the schools.

The statement from the proposal is:

The cost of the "Gas Tax Holiday" can be paid for by increased federal funding from the transportation bill past last August by the Federal Government. The Federal Highway Administration projects the average annual increase of federal transportation funds to Texas at $788.1 million dollars.

As I wrote before, this is unappropriated money that is outside of the budget surplus. As such, using it to pay for the gas tax holiday would not affect the ability of the Lege to use the surplus to boost money for the schools. That's precisely the reason why I'm okay with this proposal - it doesn't use money that could otherwise be going to the schools. Maybe I'm missing something here (certainly possible), but if not, I don't understand Robison's objection.

(Before we rehash all the other objections that were raised in the comments to that earlier post, please go back and review what was said. There are perfectly sensible reasons to think the gas tax holiday is not a good idea, but unless I've totally misunderstood the accounting here, Robison's is not one of them.)

Posted by Charles Kuffner on May 07, 2006 to Budget ballyhoo | TrackBack

I agree that the Chron's rhetorical trick is misleading at best. Anecdotal evidence is the weakest form of evidence, precisely because one can always find an anecdote to support their position.

On the gas tax holiday, I think Robison's point was simply that money is fungible. You of course are right that we could pay for a one-time gas tax holiday with a one-time Federal allotment, but we could just as easily not have the gas tax holiday, and find some other use for that one-time windfall. For example, we could devote 100% of the gas tax to education for the next 90 days, instead of just 25%, and use the Federal windfall to make up the lost highway revenue. It's not as if Texas has no other possible use for a one-time appropriation, after all.

Posted by: Mathwiz on May 7, 2006 3:26 PM

As far as the gas tax holiday goes, it sounds like some Democrats are talking out of both sides of their mouth here.

They seem to be against using part of the surplus to provide property tax relief, yet they see no problem with providing "gas tax relief" with surplus funds.

I understand that one is temporary and one is intended to be permanent, and that is an important distinction. But still, the perception is there.

Posted by: Tim on May 8, 2006 8:15 AM

What kind of business has $30 million in sales and can't absorb $30k in taxes. I call BS on that. And I call BS on the possibility that it would have killed the business a few years ago.

There are ways to reorganize your business under the proposed re-working franchise tax to maintain your "labor of love" and still pay your fair share on the revenue from a profitable business. This absolutely is NOT going to put anyone out of business that wouldn't already be heading that way because of mismanagement.

Posted by: C to the Izzo on May 8, 2006 11:28 AM