Earlier than expected, but here’s the analysis by the Center for Public Policy Priorities (PDF) of the Texas Tax Reform Commission’s finance plan.
First, the proposal is a net tax cut. We had urged a plan that increased revenue; the Governor had asked for a plan that was revenue neutral; but the commission delivered a plan that reduces revenue by using some of the so-called surplus in this biennium to replace property tax revenue.
Our present revenue system is inadequate to meet our needs. The commissionâ€™s plan makes it more so.
Second, the commissionâ€™s plan, contrary to early reports, is not less regressive than our current tax structure. Texas has the fifth most regressive tax system in the United States, meaning that those with less income pay a greater percentage of their income in state and local taxes than those with more income. Under the commissionâ€™s plan, every income group gets a tax cut, but that is because the plan reduces revenue, not because the plan reduces regressivity. Indeed, as the equity note shows, using the new business tax, along with some of the so-called surplus, to cut property taxes gives the biggest tax breaks to those with the highest incomesâ€”actually increasing the regressivity of the Texas tax system, a step backwards for low- and middle-income Texans.
Third, we are concerned about whether this new tax base has the same growth potential as the property tax. We await a fiscal note that will indicate future revenue growth. It is unlikely, however, that the new tax will grow fast enough both to keep up with what the property tax would have produced and replace the revenue lost from the net tax reduction.
On the positive side, the commission may have designed the best business tax proposed to date. This new tax may be the basis for legislation during the upcoming special session that Texans can applaud. To draw applause, however, any proposal must 1) put more revenue on the table; 2) increase fairness, or at least not make things significantly worse; and 3) meet our future needs with growth that is equal to or greater than the growth from the property tax it replaces.
Lots more reaction from various business groups and other stakeholders here. There’s too much to reasonably excerpt, so go read it all. Right now, there’s a lot of waiting-and-seeing, with a generally positive if not enthusiastic undertone.
Vince does some interpretation of the report, and notes that it’s basically the same as a proposal from 2002 by the Joint Select Committee On Public School Finance. What’s interesting is that the JSCOPSF report (PDF) also addressed education reform as well as school finance and tax reform, something the TTRC did not do. Vince has some excerpts comparing the two reports, so go see for yourself.