TAXES

Senior Fiscal Analyst Dick Lavine on the Texas Comptroller of Public Accounts revised revenue estimate released yesterday.

“To meet the needs of all Texans for educationâ€"the proven path to better jobsâ€"and health and human servicesâ€"vital protection for Texas familiesâ€"our state must reform its out-of-date revenue system."

Schools, colleges, parks, social services, and other infrastructure are what make Texas a good place to live and work. Taxes are how Texans pay for these things. The state relies heavily on sales taxes, which take a bigger share of the income of low- and middle-income families. To try to make our tax system more fair, since 1999, Texas has held a sales tax holiday the third weekend of every August that temporarily suspends sales taxes for purchases of clothing, shoes, backpacks, and school supplies priced at less than $100. Sales tax holidays actually do little for low- and middle-income families, while costing Texas needed tax revenue. This Policy Point considers the sales tax holiday.

At the beginning of the session, the state faced a $27 billion gap between anticipated revenue and the amount needed to fund current services. Rather than relying on cuts alone to close the gap, CPPP urged a balanced approach that used the state’s Rainy Day Fund and added new revenue to minimize damaging cuts. With the Governor putting the Rainy Day Fund and new revenue off limits, however, the Legislature has been left with no alternative but larger-than-necessary cuts reduced only to the extent possible by payment delays and tax speedups.

A small number of bills that would actually increase the amount of revenue available to fund a balanced approach to the 2012-13 budget by reducing tax exemptions or raising tax rates have taken at least an initial step forward. Texas needs additional revenue, along with dollars from the Rainy Day Fund, to minimize damaging cuts to public education, higher education, and health and human services.

Despite the extreme revenue shortfall that has led to budget proposals reducing or eliminating a long list of essential state services, numerous bills that would further cut the amount of revenue available to fund the 2012-13 state budget continue to move through the legislative process.

Yesterday, Senate Joint Resolution 12 by Patrick, proposing a constitutional amendment requiring a two-thirds vote for any tax increase was set for Senate deliberation as soon as Monday. SJR 12 is bad governance and bad tax policy.

SJR 12 would be a disaster for Texas and should be rejected.

Texas has until August 2011 to collect $555 million in federal funds to reduce employer unemployment insurance (UI) taxes. To draw down the money, the state need only make three common-sense policy changes that would save jobs, increase economic activity, and stabilize employer tax rates in 2012 and 2013. To date, 39 states have been approved for $3.4 billion in U.S. Department of Labor incentive payments. This policy page outlines the modest steps Texas must take to help both employers and employees.