Sharp Proposal Can Benefit the State
The Texas Tax Reform Commission has made some significant proposals that could eventually prove highly beneficial to the state economy. The recommendations of the commission, chaired by John Sharp, former Comptroller of Public Accounts, reflect a considerable overhaul and modernization of the Texas tax system.
If adopted by state lawmakers during the special session which begins April 17, the plan will provide record tax relief, real tax reform, and greater tax fairness for those who own homes and businesses. The plan will also supply schools with a reliable revenue stream for the future. Moreover, it will provide opportunities for economic growth and job creation.
Although all the intricacies of the Commission’s proposal have not yet been thoroughly examined by the legislators, sufficient information is available to assess its value. In general, the plan will reduce property taxes, eliminate the current corporate component of the franchise tax, and remove much of the penalty currently imposed on large, capital-intensive enterprises. In doing so, the proposal will stimulate investment and economic development across the state. The plan will also tap about $1 billion of the state’s budget surplus.
A special feature of the program suggested by the Commission is that, if adopted, the burden of taxation will be spread more evenly throughout various industrial sectors, thus making the system more responsive to expansion in state performance and fiscal needs.
The plan calls for the largest property tax reduction in state history, providing more than $6 billion in relief, which represents a 33% reduction in school operations taxes for homeowners and employers. As a result, homeownership will be much more affordable and employers will be able to use more of their financial resources on jobs and growth.
The Commission’s proposals ensure that a greater share of education costs will be assumed by the state; picking up about half of the cost compared with an estimated 36% currently. As a result, it ends the over-reliance on local property taxes to fund school operations and reduces the amount of local property tax dollars that are recaptured and shifted from one district to others elsewhere in the state.
Texans in every income bracket will receive some relief if the proposal is adopted. The only exception will be those who use tobacco; the plan calls for a $1-per-pack tax increase in the cigarette tax.
In addition to the general tax relief the plan suggests, it will also institute a noteworthy reform in the franchise tax, making it broader and fairer, while lowering it from 4.5% to 1%. In doing so, it closes the loopholes so that more businesses will pay their share of education costs and spreads the opportunity of paying for education across a broader cross section of the economy. The result will be a more stable and predictable revenue stream for schools.
Another benefit of the plan will be its creation of a strong climate for job expansion by doubling the small business exemption from $150,000 to $300,000 in total revenue and indexing it to inflation. Exemptions in place will continue for sole-proprietorships and general partnerships owned exclusively by natural persons.
The increased efficiency in the allocation of the tax burden alone will result in substantial gains to the economy. Our estimates suggest the efficiency will return $2.179 billion in annual Total Expenditures; $0.794 in annual Gross State Product; $0.216 billion in annual Personal Income; $0.867 billion in annual Retail Sales, along with the creation of some 11,265 Permanent Jobs.
In addition, expansion in business activity will provide an annual increment to State revenue of some $301.2 million, with practically all major industrial sectors reaping increases in output and employment. When the real estate gains and stimulus to economic development are factored in, the estimated benefits rise to $10.971 billion in annual Expenditures; $4.158 billion in annual Gross Product; $2.118 billion in annual Personal Income; $1.640 billion in annual Retail Sales; and 48,755 Permanent Jobs. A further benefit will be the stimulation of more than 2,000 new housing starts per year and almost 3,000 sales of existing homes.
The Texas Tax Reform Commission’s proposals represent a momentous milestone in moving our tax structure toward a model well suited for the information and technologically oriented society in which we live. Lawmakers are encouraged to give thoughtful consideration to what it can mean for Texas—today and tomorrow.
posted @ 07:30 AM CST [link]
Friday, March 24, 2006
Congratulations on Significant Success
Actor George Peppard, who played Col. John “Hannibal” Smith on the 1980s television series, The A-Team, had an expression he would often slyly utter when something worked out just the way he had envisioned it.
The expression? “I love it when a plan comes together.”
Although to date I have not heard Governor Perry or other political or business leaders repeat that sentence, it certainly would not be out of place, especially in light of the special honor the state received earlier this month.
You may recall that back in 2003 the state had fallen from among the top of the list of favorite sites for corporations and companies seeking to expand or enhance their operations. In the early 1990s, Texas had perennially ranked at or near the pinnacle. Its pro-business attitude, skilled workforce, and myriad educational and cultural opportunities had convinced scores of major organizations that the Lone Star State offered special advantages to their operations. The times, however, had changed.
The reputation of Texas as the future home for visionary businesses that once seemed secure had gone awry. Something happened on the way to the zenith. Business development leaders in other states, seeing the success Texas was achieving, began to change their modus operandi. They recognized that in order to encourage industries to seek greener pastures within their boundaries, they would have to offer greater incentives and institute more flexible plans.
Gradually, other states began to experience significant success in these kinds of endeavors. Texas ranked as low as 37th in new manufacturing locations. When the situation reached the level of concern for Texas business officials, it became apparent that the state needed new tools and a better approach if it was going to have success in the competition. That’s when what Peppard might have called “the plan” was conceived.
Prior to the opening of the 78th Legislature in 2003, the governor and other leaders began making concerted efforts to eliminate the state’s disadvantage in attracting new jobs to our state. The result or “the plan” was the creation of the Texas Enterprise Fund (TEF), as well as significant judicial reforms, a restructuring of state recruitment efforts, and numerous other meaningful reforms.
As authorized by the state lawmakers, the TEF initiative provided significant monies to attract new businesses or to assist in the substantial expansion of existing operations. The Fund empowered the governor to respond rapidly and aggressively to close deals in order to bring in companies and create jobs in Texas. Funds were also appropriated to enhance technology and biotechnology and to support various health and disaster relief operations.
Within a year, the state’s economy had been significantly strengthened with positive results achieved in 668 cases of new and expanded facilities. In recognition of this level of success, Site Selection magazine awarded Texas the 2004 Governor’s Cup, the trophy that recognizes the state winner in the competition for business expansion. Criteria for consideration involve projects that result in capital investment of at least $1 million, creation of 50 or more jobs, or an expansion involving over 20,000 square feet of new floor space.
The citation accompanying the award noted that the role of the TEF was a driving force in enabling Texas to enhance the state’s business projects and operations. It was not the first time the state had been so recognized. Texas also received this special honor in 1978, 1980, 1981, 1982, and 1992.
So what were the results in this business competition for 2005? Texas won again—by a 26% increase over its accomplishments of the previous year! The state’s 842 projects for 2005 were well ahead of second place Ohio with 598. With the recent presentation of the 2005 Governor’s Cup, Texas has now won the award more than any other state.
To date, the TEF has played a major role in closing the deal on projects that will create some 37,000 new jobs and add $6.7 billion in capital investments to the state economy. This level of success is unprecedented, and the process has just begun. The new Texas Emerging Technology Fund promises to secure a position in the growth industries of the future for decades to come.
Like George Peppard, I think we can all be glad when a plan comes together.
posted @ 07:55 PM CST [link]
Friday, March 17, 2006
Texas Is Watching
Over the past couple of years, hardly a week has gone by without the subject of education being at the forefront of Texans’ interest, especially public school financing.
Education and how to finance it, of course, are not new matters of concern for those living in Texas. In fact, the refusal of the Mexican government to provide for such measures was one of the reasons that sparked the Texas revolution some 170 years ago this month. I wrote my undergraduate honors thesis on the subject in 1974, and it was a very hot topic then. (I have since read it again to see if I had any brilliant ideas at age 21 – I didn’t!!)
Since the days of the Republic, there have been relatively few periods when educators and government officials were not seeking ways to ensure the viability of Article 7, Section 1, of the Texas Constitution. As you’re probably aware, we’ve had six constitutions, and in all of them, public education has been a matter of supreme importance.
The Constitution we now follow, adopted in 1876, says, “A general diffusion of knowledge being essential to the preservation of the liberties and rights of the people, it shall be the duty of the Legislature of the State to establish and make suitable provision for the support and maintenance of an efficient system of public free schools.”
This responsibility is certainly not something taken lightly by our elected officials, and equally true is the fact that differences of opinions on how to accomplish the mandate has sometimes caused a bit of consternation. I take that back, not a “bit” of consternation, but a “whole lot” of it.
Through the years, the subject has been bantered about from the hallowed halls of academe to the historic halls of the state capitol to the locker-lined halls of schools across the state. Today, in some cases, when two people discuss the matter, three divergent opinions can emerge. No wonder the process of determining ways and means to finance public school education effectively and efficiently has seen such extraordinary turmoil lately.
Expenditures per student and legislative allocations for education have been on the rise in the past several years. Still, in comparison with other states, Texas ranks low in many categories related to money.
More money, of course, isn’t the only answer for improving the state’s public education system or possibly even the best solution. The converse, though, does ring true because the lack of adequate monies has the potential to severely limit educational opportunities.
So, what’s the best answer for ways to provide the $33 billion needed to educate approximately 4.3 million school children in Texas? The Robin Hood financial equalization plan never seemed to capture the popularity it did in the original Sherwood Forest, and the system that led to virtual uniformity in local tax rates has been declared an unconstitutional state property tax by the Texas Supreme Court.
So what’s next? Everyone seems to be waiting and watching. It’s much like viewing a tennis match. Each suggestion regarding the most productive way to finance the education of our children is similar to a volley. After waiting for the ball to land in the court of another, everyone watches to see what the return response will be.
Although solutions adopted in the special legislative session that Governor Perry is expected to soon announce may or may not resolve the debate regarding school finance, perhaps the knowledge that the “eyes of Texas” will be upon the participants will help make a difference in how and what they decide.
posted @ 08:15 PM CST [link]
Friday, March 10, 2006
Good News and Really Good News
As I write this column, college basketball teams throughout the country are hoping to receive bids to the 2006 NCAA national championship basketball tournament within days. All of the universities selected will undoubtedly strive to make their efforts memorable. Some will have more success than others, of course, but until the outcomes are known, each school will rejoice in the “good news” of just being able to participate.
While basketball fans will undoubtedly keep up with the wins and losses over the next few weeks, there are others who will have little, if any, interest in the competition. And even the most die-hard fans have no real stake in the outcome. By contrast, there is some other “good news” you probably haven’t heard, but which is literally a life and death issue.
In reality, it’s not just one “good news,” it’s several “good newses.” But, since “newses” isn’t the proper plural usage, let’s just stay with “good news.” Still, the news is plural as it pertains to three different things—health, longevity, and employment—subjects that are on our minds almost all the time rather than just during March Madness.
Recently, the National Center for Health Statistics reported that the number of people dying from cancer has dropped for the first time in decades. This is particularly good news for those with the disease as well as the nearly 1.4 million Americans who will be diagnosed with cancer this year—some 85,570 in Texas alone.
Cancer is still one of the leading killers in the US, but medical science is making significant progress. With cancer not taking the toll it used to, more people will be able to remain on the job, and their productivity will be enhanced. In addition to the effects on health and quality of life, this phenomenon can add billions of dollars to the economy. The vast amount of research and related activities is also proving beneficial to the overall economy.
Along with greater chances for surviving cancer comes the good news that Americans are living longer. Thus, older workers are becoming increasingly important to the labor market.
A recent study by Aging Texas Well, a 10-year-old program designed to prepare our state for an increasing older population, shows that nearly a quarter of those who have reached retirement age are still working. In addition, 10% of those not employed are currently looking for a job or soon plan to do so. One out of every five older Texans has an income of $60,000 or more.
While having close relationships with friends and family was considered the most important aspect of life for about 99% of older persons, 58% acknowledged that having a job was also very important to them.
Public policy is doing its part in encouraging those physically able to continue to work, and “age-neutral” 401k plans are replacing traditional pension plans structured to move older workers out. More and more companies are recognizing that even though America is graying, age doesn’t always determine the effectiveness or capability of a worker.
When you put all these matters together you have some really, really good news. Cancer doesn’t have the death grip it used to have, and people are living and remaining productive longer. The combination of such good news might even be enough to earn “newses” a place in the next edition of Webster’s Dictionary.
posted @ 08:02 PM CST [link]
Friday, March 3, 2006
A National Celebration
Birthdays and anniversaries are unique occasions in many families, especially when they involve the 50-year milestone. These kinds of events are marked in a variety of ways, and the activities associated with them can last from a day to a week or more. However, other notable anniversaries may pass with little recognition, even when fanfare may be much deserved.
That’s the case with the manner in which America is now remembering what has often been described as the “greatest public works projects in history.” This project, which is still being expanded and enhanced, was initiated in 1956 by numerous transportation visionaries, political leaders, and business entrepreneurs. Today, it affects the daily lives of almost all Americans, and yet the fact that it’s been around half a century probably goes unnoticed by most of our population.
Although the exact 50th anniversary date will not arrive until June 29, 2006, the kick off for the celebration began some six weeks ago. Do you recall the hoopla related to this event? That’s alright if you don’t, because it occurred during the annual meeting of the Transportation Research Board in Washington, DC at a local hotel, and most people probably didn’t notice.
But on that occasion, a large red ribbon was cut to open the door and pave the way for Americans to remember the past and celebrate the future of a unique “symbol of freedom.”
In case you haven’t figured it out by now, let me bring you up to date. To connect our country to the world economy and to provide special avenues over which military personnel and supplies could readily be transported from coast to coast, the National Defense Highway Act was passed in 1956, and a 40,000 mile highway system was devised. Up until that point, the US was basically a rail transportation nation.
At that time, no other state had a larger stake in the success of the plan or could envision the tremendous benefits it could bring than Texas. Approximately 2,900 miles of new roadway was to be constructed in the Lone Star State, which was already well known for its system of excellent highways. Today, there are more than 3,233 miles of this thoroughfare traversing Texas’ vast expanses along 17 different routes, some 800 more miles than in California, which has the second most miles of highway in the US.
This engineering marvel, which stands as a tribute to thousands of dedicated planners, engineers, and construction crews, has cost somewhere in the range of $420 billion. A hefty price, but well worth the investment. For over the past half century, this project has contributed almost $2.8 trillion just to the economy of Texas. Last year, this system of roadways is estimated to have helped boost the state’s economy by about $104 billion.
By now, you’ve probably guessed what I’m talking about—our interstate highways. They are officially known as The Dwight D. Eisenhower System of Interstate and Defense Highways in honor of President Eisenhower’s leadership in getting the project rolling. Without this system of highways, life in the US would probably be quite different and getting from one place to another would undoubtedly be more risky, take longer, and possibly be less enjoyable.
In essence, interstate highways have enriched all our lives, improved national security, and given our nation a tremendous advantage in international competitiveness. They have provided five decades of enhanced safety, mobility, and economic expansion.
In Texas, the interstate system represents about two percent of all overall roadway lane miles, but carries approximately 22% of all traffic. More than $100 billion of the state’s exports travel along this highly efficient network annually.
Some estimates suggest that without the interstate system, Texas would have 1.6 million fewer wage and salary workers, and our economy would have been $650 billion smaller—just for 2005 alone. The rate of return on this investment of public resources has been outstanding.
I’m pleased our nation and our state has had so many forward-thinking people who have recognized the value of transportation to our way of living. Without them, we may not have had the interstate highway system, which is perhaps the best investment our nation has ever made. Even as it celebrates its Golden Anniversary, increasing congestion is compelling a similar visionary approach to future infrastructure needs. Nonetheless, this milestone is a cause worthy of national pomp and circumstance.
posted @ 08:26 AM CST [link]