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Tax expenditures

According to a legislative report prepared by the Ways and Means Committee, Texas is losing over $4 billion per biennium to various tax exemptions and expenditures.

One of the largest carve-outs was for the natural gas tax, which totaled about $1 billion a year in exemptions, according to the report. An exemption for bottled water sales amounted to a loss of about $250 million a year for the state, while an exemption for corporations with business interest in solar energy devices cost more than $1 million over the last two years.

The committee prepared the report to address Republican House Speaker Joe Straus’ charge to examine the exemptions and determine “how the current costs and benefits compare with the original legislative objectives,” according to the report, which did not make recommendations about which tax exemptions should be repealed.

Rep. Rene Oliveira, chairman of the tax-writing committee, also did not say which exemptions he would favor for repeal, but said the report contains as much as $2 billion in “low hanging fruit.”

“We should be looking at exemptions that should be repealed – whether it’s a corporate welfare exemption . or whether it’s a personal one – that the public policy that was the basis for it 10, 15, 20, 30 years ago no longer exists,” Oliveira told the AP.


Exemptions in the state business tax – which include a break for small businesses – also included a carve-out for certain insurance companies that pay another levy on premiums. That exemption cost the state about $1 billion in the last two years.

The report also examined sales tax exemptions for aircraft sales, internet service, coin-operated machine sales and billboard advertising. It raised the possibility of taxing cosmetic surgeries and automotive repair and maintenance services.

I’m not going to argue for or against any of these items right now. I guarantee, every single one of them has a constituency from which we will hear in loud and anguished terms if their particular piece of the pie comes under real scrutiny. I simply want to make the point that as the government is always being urged to examine its expenditures to ensure they are justified and useful, so should we at least periodically examine the breaks, loopholes, exemptions, and other instances of special treatment that we build into the tax code to see as Chairman Oliveira says if they are still fulfilling a valid policy role. To once again cite my favorite example of this, purchases made via the Internet were initially shielded from sales taxes in order to give these fledgling “online” businesses a fighting chance for survival. I think we can all agree that this business model has proven successful, yet the tax exemption exists. What purpose is it serving now? Regardless of what we decide, we should be having the debate.

One more thing: In the comments to an earlier post, I was asked what the “progressive solution” to the current budget situation would be. The full answer to that is complex and broad – there’s no one “progressive” answer but a range of ideas that we’d love to bring to the table – but consider this: If we used the Rainy Day Fund, adjusted the business margins tax and/or the 2006 property tax cut to eliminate the structural deficit that was created at that time, and at least grabbed the “low hanging fruit” that Chairman Oliveira referenced, we’d shave about $15 billion off the shortfall. That’s before you get to the LBB recommendations, many of which I find meritorious, or to cuts that progressives should gladly support like the closing of the Sugar Land prison, or to expanded gambling and whatever it may or may not have to offer. Sure, even if you do all that you’re still eleven or twelve billion dollars away from where the CPPP thinks we need to be, and from there you really can’t avoid making cuts to stuff we like (given that nobody will listen to our tax ideas, that is), but at this point the task becomes a lot smaller and a hell of a lot less painful. Doesn’t that sound better than laying off 100,000 teachers?

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  1. mark says:

    Doesn’t that sound better than laying off 100,000 teachers?

    Unfortunately that’s only true if you believe government has a responsibility to make investments that will improve the lives of its citizens. If you believe that government should be used to make your friends richer, eh, not so much.