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The entitlement argument against removing a sales tax exemption

The House Ways and Means Committee, chaired by State Rep. Rene Oliveira, continues to examine tax expenditures such as sales tax exemptions, and the whining coming from some of the potentially targeted businesses is really starting to annoy me.

The $30 billion value of 2009 sales-tax exemptions is bigger than the $21 billion in sales tax collections that year. Of the exemptions, $8.1 billion are on items taxed by other laws. Another $10.1 billion is for materials used in manufacturing. Various services have exclusions estimated at more than $5.3 billion.


“Other states also have sales tax exemptions for materials purchased for manufacturing research and development. Texas needs its existing manufacturing sales tax exemption just to stay competitive,” said Luke Bellsnyder, of the Texas Association of Manufacturers.

Ronnie Volkening, of the Texas Retailers Association, said his group wants to preserve the tax exemption for bottled water, which it views as a food product. Extending the sales tax to such services as accounting could drive some businesses to seek providers outside Texas.

“It does affect the bottom line of any business,” he said.

Imposing the state sales tax on tattoos, tanning and body-piercing would mean an estimated $4.8 million a year, according to the state comptroller’s office. Tattoo artists and their studios do not like being singled out any more than would the largest industry with the priciest lobbyists pounding the Capitol hallways.

“That’s going to really upset me, actually. That will affect me financially,” said Antone Pham, a tattoo artist at the Texas Tattoo Emporium in Houston. “People already complain about how much tattoos cost sometimes. I’m going to tack a tax on to that? That’s going to make it harder for me to even make money.”

I’m okay with exempting materials used in manufacturing and R&D. But bottled water? Tattoos and tanning salons? Please. Bottled water is basically a luxury item that also has a role in hurricane preparedness, and I’ve already said I’d be fine with suspending sales tax collections on bottled water during hurricane season for affected areas. I can only marvel at the idea that tattoo parlors and tanning salons got exempted from the sales tax in the first place. That must have been an oversight on someone’s part, for which it is high time to be corrected.

Those things won’t bring in much money. Frankly, taking away all the remotely viable exemptions, leaving things like food, manufacturing items, medical and legal services untaxed, will only make a small dent in the deficit. But it needs to be done. Everyone else is sacrificing, and the public policy arguments against these exemptions are far more persuasive than the ones in favor of them. The end result may not be much, but it will reduce the need for more draconian cuts, and combined with a reduction in tax expenditures will go a little way towards making the overall system fairer.

Which is no doubt why some people want to hinder that effort:

Senate Finance Committee Chairman Steve Ogden, R-Bryan, said any change in exemptions should be part of an overall tax reform effort and should be revenue-neutral, meaning any additional money raised would be used for something such as lowering the tax rate. While that could bring in more money long-term by virtue of a broader base and more efficient collections, it would not help the looming budget problem.

“The best way to mess this up is to start talking about specific exemptions right now. It’s got to be put together in some sort of coherent package, where there’s give and take. You can’t just pick ’em off like they’re targets in a shooting range,” Ogden said. “Almost surely going into next session, any kind of sales tax reform, at least initially, would probably have to be revenue neutral, or it won’t pass. Nobody’s out there, Republican or Democrat, campaigning and getting elected on the notion that our problem in Texas is our taxes aren’t high enough.”

Are you kidding me? We’re $18 billion in the hole, thanks in large part to that ginormous non-revenue-neutral property tax cut of 2006. Steve Ogden knows this, and he knows fully well that Texas is among the lowest-taxed states in the country. This is tremendously irresponsible thinking, the kind that will ensure we have deficits every biennium. What exactly does Ogden think the appropriate level of state government services should be? Who does he think should be bearing the costs of the budget, and who does he think should get away with paying less? Who does he think is getting shafted now?

What constitutes a tax increase is open to debate, Oliveira said.

“Taking away an exemption from someone who no longer deserves it isn’t a tax increase.” he said. “I just don’t see how we can, at this point, bind ourselves to being revenue-neutral, when we have not seen the drastic cuts that are going to be required to deal with an $18 billion deficit. I couldn’t agree to that now.”

How can we solve a problem if we can’t even agree we have a problem? How can we hope to meet the needs of a growing and increasingly needy population if we can’t ever look for new sources of revenues? The only way that Ogden’s position makes sense is if you think limiting revenue is more important than providing some minimal set of services. I don’t support that. I don’t even understand that. But if you’ve ever wondered why Texas has gotten sued so many times over things like school funding and health care for prisoners, now you know.

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