TAXES

Recent proposals from Congressional leaders would extend lucrative tax breaks for an estimated 540 multi-million-dollar estates in Texas while letting tax improvements expire for 1.5 million moderate-income Texas working families with nearly 3 million children, according to a new report from the nonpartisan Center on Budget and Policy Priorities.

There has recently been a lot of attention focused on who pays the taxes that are necessary to support our public services. On the federal level, the discussion has been about the federal income tax and payroll taxes for Social Security and Medicare. In Texas, the two major taxes are the sales tax, which provides more than half of all state tax revenue, and the local property tax, which is a major support for schools, cities, counties, and community colleges.

Public education is the foundation of our democracy and the engine of our economy, and Texans have a collective responsibility to ensure that public education is adequately supported. This responsibility needs to be fairly distributed among Texas families in a way that supports economic growth. Recently, some have proposed that Texas replace local school property taxes, or even all local property taxes, by increasing the rate of the state sales tax or expanding the sales tax to more goods and services. Such a tax swap would be a bad deal for businesses, families, and public education. This policy page outlines the reasons why.

Texas one of six states studied in detail

(AUSTIN, Texas)â€"The State Budget Crisis Task Force, a national blue-ribbon group convened by Richard Ravitch and Paul Volcker to study state tax and budget issues, released its recommendations today at a press conference in Washington, D.C.  Texas was one of six states studied in detail. We have closely followed the work of the task force.  Several of its recommendations are important for our state.

The proposed Federal Digital Goods and Services Tax Fairness Act of 2011 (“DGSTFA,” H.R. 1860/S.971) would limit state and local governments’ ability to levy taxes on downloaded music, movies and online services like photo storage and payroll processing. This would reduce the ability of Texas and its local governments to provide necessary public services. The revenue losses would grow as more types of entertainment, information, and business-to-business services use online technologies.

During the legislative session, we recommended that the state spend the Rainy Day Fund to prevent damaging cuts to vital state services, particularly public education. The Rainy Day Fund is a constitutional fund designed to save money in good times to pay ongoing expenses during bad times when revenue is short. After the economy improves, and revenue rebounds, general revenue once again pays for ongoing expenses. During the 2011 legislative session, with billions available for appropriation from the Rainy Day Fund, the state had no need to cut spending on public educationâ€"the proven path to good-paying jobs. Unfortunately, the state cut public education spending by $5.3 billion.

The latest numbers from the Comptroller confirm that the high-cost-gas exemption reduced state revenue from the natural gas production tax by $1.04 billion in fiscal year 2011, after reducing revenue by $1.31 billion in fiscal 2010.

The $27 billion revenue shortfall faced by the Legislature in 2011 was not solely the result of the national recession and the needs of a growing population. Roughly a third of this gap was due to decisions made five years before, when the Legislature required school districts to cut their property taxes, but failed to create new sources of state revenue to fully replace the foregone revenue, creating a $10 billion hole or structural deficit. This hole will appear in every state budget until the Legislature fills it with additional revenue.