TAXES

Our state needs adequate revenue to keep our public structures working and to prevent painful cuts in state services. The state’s new Annual Cash Report for fiscal 2009, though, reveals that tax collections for the year were $1.1 billion short of the Comptroller’s forecast. Ominously, for the first 2 months of the new 2010 fiscal year, sales taxes have generated 12.7 percent less revenue than in the same period in fiscal 2009. Texas needs its elected officials to take forceful action, including a second package of federal aid to states, school districts, and local governments, to help our state maintain public services until steady economic growth resumes.

Texas' Tax System Is Nation's Fifth Most Regressive

Austin, Texasâ€"The Center for Public Policy Priorities (CPPP) today highlighted a new national study showing that Texas taxes on the bottom 20 percent of income earners are the fifth highest in the nation. The study, published today by the Institute on Taxation & Economic Policy (ITEP), shows low- and middle-income Texans pay a far higher share of their income in state and local taxes than do the richest families in Texas, making it the fifth most regressive state tax system. CPPP emphasized that Texas should work toward a tax system where families at all income levels pay similar percentages of their income to support state and local public services.

(A Continuing Series)
Revenue Drain from Future Budgets Has Already Begun

Two weeks ago we listed the bills that threaten to reduce the revenue needed to support public structuresâ€"including public education, child health services, and transportation infrastructureâ€"that help Texans maintain their quality of life. This Policy Page updates that information as almost all of these bills continue to progress through the legislative process.

Caution: bills that do not pass in their current form may reappear as amendments to other legislation.

Public structuresâ€"including public education, child health services, and transportation infrastructureâ€"help maintain Texans' quality of life, and they require adequate revenue to function properly. To provide adequate revenue, our state needs a balanced tax code without tax cuts, abatements, and subsidies that let some dodge their share of responsibility. Reducing taxes paid by some businesses means that other businesses or families have to make up the difference to help us take care of our public structures so they continue to take care of us. Investments in Texas’ future through education, health and human services, and transportation will lead to a better chance for more prosperous future for all of us than would so-called “economic development incentives” that lower taxes on a select few companies. This Policy Page concludes with two bills that would increase state revenue by eliminating certain special treatments.

On Monday, May 4, the House will consider HB 4765 by Representative Rene Oliveira, which would reduce franchise tax revenue available to fund the 2010-11 budget by $172.1 million. Bills that reduce franchise tax revenue, which is dedicated to replacing school property tax revenue lost to the tax cuts enacted in the 2006 special session, could endanger the state's receipt of federal stimulus money that is intended to restore state support for education by signaling that the state does not need the federal aid for this purpose. In any event, now is not the time to cut business taxes. Texas needs to focus on protecting families.

The case of the sales tax discounts and refunds

Public structuresâ€"including public education, child health services, and transportation infrastructureâ€"help maintain Texans’ quality of life, and they require adequate revenue to function properly. To provide adequate revenue, our state needs an up-to-date tax code without loopholes that let some dodge their share of responsibility. The Texas Tax Code contains more than a few tax breaks, special treatments, and refunds that have outlived legislators’ rationale for adopting them. This Policy Page briefly describes three of these special-interest dealsâ€"the “timely filer” discount, the “prepayment” discount, and the sales tax refund for economic developmentâ€"and suggests that the Legislature apply a sunset process to the tax code, as it does to all state agencies. An up-to-date tax code will help us take care of our public structures so they continue to take care of usâ€"without the rest of us having to pick up the slack for those using anachronistic tax loopholes to avoid paying their fair share.

Our quality of life in Texas depends on our public structuresâ€"including public education, child health services, and transportation infrastructureâ€"maintained by Texas tax dollars. A good tax system would not only provide adequate revenue to maintain these structures, but would also match the share of taxes paid with the share of income earned by each Texas family. However, the Comptroller's newly released biennial study of the fairness of the Texas tax system, Texas Exemptions and Tax Incidence, demonstrates conclusively that low- and moderate-income Texas families bear a disproportionate share of state and local taxes. We need a fairer system to fund public structures so can improve and maintain Texas families' quality of life.

A circuitbreaker is a targeted property tax reduction program that operates like an electric circuitbreaker, which cuts off the electric current to a house before an electrical surge can cause damage. A property-tax circuitbreaker reduces property taxes that exceed a certain percentage of a taxpayer’s income. Circuitbreaker programs account for a taxpayer’s ability to pay when calculating a property tax bill. Without a circuitbreaker, the property taxes owed on a home can rise, even when a homeowner’s income does notâ€"or worse, when the homeowner loses income due to unemployment. Policymakers can target circuitbreakers to taxpayers who have the most difficulty paying property taxes and reduce their tax liability to a manageable level. Because of this careful focus, circuitbreaker programs cost far less than across-the-board rate reductions or increases in exemptions. This Policy Page examines variations among several states’ thresholds for triggering the circuitbreaker and how they administer their programs.

A circuitbreaker is a targeted property tax reduction program that operates like an electric circuitbreaker, which cuts off the electric current to a house before an electrical surge can cause damage. A property-tax circuitbreaker reduces property taxes that exceed a certain percentage of a taxpayer’s income. Circuitbreaker programs account for a taxpayer’s ability to pay when calculating a property tax bill and cost far less than across-the-board rate reductions or increases in exemptions. This Policy Page examines variations among several states’ thresholds for triggering the circuitbreaker and how they administer their programs.

Today, Congress released the details of the American Recovery and Reinvestment Act (ARRA), which provides $789 billion to stimulate the economy. Many of these measures will also help protect vulnerable Texans during this economic downturn. To take full advantage of the benefits in the recovery package and set our economy on the road to recovery, Texas must plan immediately. We applaud Speaker Joe Straus for appointing the Select Committee on Federal Economic Stabilization Funding, charged with monitoring federal action and suggesting to standing committees needed steps to qualify for federal economic recovery funds. This paper summarizes the portions of the bill that affect the state budget.

As the national recession deepens, Texas must look for ways to generate needed revenue for vital programs like Medicaid that low- and moderate-income Texas families rely on when they need it most. Implementing a hospital quality assurance fee (QAFs) in Texas could generate nearly a billion dollars in state and federal funding that could be used to increase payment to Medicaid providers and expand coverage to the uninsured.

The 81st Legislature faces the tough task of writing a state budget for 2010-11 in the midst of a serious economic recession. Even in times of robust economic growth, the state’s antiquated revenue system does not produce adequate revenue. Texas must address this problem in the long run to ensure our prosperity. In the short run, policymakers may look at sin taxes as a way to raise additional revenue.

Today the Comptroller of Public Accounts announced her Biennial Revenue Estimate. The Comptroller forecast $9.1 billion less general revenue to write the budget for 2010-11 than was available for 2008-09. But the Comptroller also forecast $9.1 billion available in the Rainy Day Fund. The 81st Legislature must now write a budget for 2010-11.

Spending cuts would hurt the Texas economy and hurt vulnerable Texans. That means:

• Texas needs federal fiscal relief;
• Texas should spend a significant portion of the Rainy Day Fund to protect the state from the full effects of the recession; and
• Texas should consider new revenue sources.