After an intense 140 days marked by moments of high drama, moments of bitter acrimony, moments of economic absurdity, and the sad and tragic death of a joyful and capable young member, the Texas Legislature adjourned its 79th Biennial Session. While many worthwhile things were accomplished, the signature issues of public school finance and property tax relief remained unresolved.
It was an interesting ebb and flow. As the debate began, the public overwhelmingly wanted lower property taxes and an end to our “Robin Hood” redistribution plan. As various proposals came forward, however, the polls began to show that maybe the current system wasn’t so bad after all (it is, by the way). As soon as the Session concluded, voters were wondering what happened to their tax cuts. The fickle electorate can be terribly frustrating for elected officials.
Voters also indicated in one survey that they preferred a property tax cut without an increase in other taxes (duh! who wouldn’t?!). The extra money would presumably come from spending cuts, which is easy to talk about and difficult to achieve. Despite the rhetoric on some fronts, the State budget is very, very lean.
I have been around this issue a long time. During 1973-1974, when I was a senior at Baylor, I wrote my honors thesis on “Financing Educational Reform and Refining Educational Finance.” It was one of the hottest topics of the day. A few years ago, I went back and read it to see if I had some particularly brilliant idea as a 20 or 21-year-old. I didn’t!
What we have just witnessed is a classic demonstration of the old adage that “The only good tax is an old tax.” When you start swapping one tax for another, you immediately create winners and losers. The losers get motivated and organized very quickly and make life difficult for all. Politics and campaign money also get involved.
In this instance, the House came up with a plan that included a broad business tax and a relatively large sales tax increase. The Senate approved a larger (but slightly more efficient) business tax and a smaller rise in the sales tax. At the end of the day, the two sides couldn’t pull it together.
In theory, this task is easy (or at least straightforward). I regularly measure the efficiency, equity, and growth potential of alternate taxes. Broad-based, low-rate business taxes score very well on the measures. If you started from scratch to build an economy in a laboratory, you could do a lot worse than to put a business activity tax in place (ultimately, no matter who you levy a tax on, the vast majority are paid by individuals).
Texas is, of course, neither nascent nor experimental. We have an existing tax structure that has evolved over many decades as a result of thoughtful legislation, shifting priorities, political clout, last-minute maneuvering, and sheer randomness. As a result, billions of dollars have been invested based on certain expectations regarding tax liabilities. In such an environment, change will almost inevitably be incremental and will always be tough. We have seen this difficulty in numerous failed efforts.
The major opportunity to provide property tax relief, education reform, and a substantial net tax reduction is casino gaming. Such an initiative would also bring billions of dollars and thousands of jobs to economies around the state. In fact, no sooner had the gavel come down in Austin than facilities in neighboring states again expanded their offerings to lure more Texans across the border to support schools in other states. To date, expanding Texas gaming options has failed due to political considerations, but it remains the only obvious pot of money to be had without a tax increase.
We should not forget that scores of dedicated and capable public servants have devoted thousands of hours to this issue. For this effort, they should be commended, not criticized. Out of all this sweat, we can only hope there are the seeds of a permanent solution that can be implemented in a timely manner. We owe the current and future students of Texas nothing less.