From the Texas Tribune: A Big Idea, With a Big Price Tag

In 2306 we just finished looking at tax policy in Texas. Here's a story that foreshadows a looming fight between those who see property taxes and those who see sales taxes as the best way to collect revenue. The forces opposing property taxes have been gaining steam in the state:

- Click here for the story.

Property taxes are easy to hate, and Texas property taxes are high enough to turn this civic irritation into a full-blown political issue.

So it makes news when a candidate for comptroller of public accounts — the state’s tax collector, treasurer and all-around ace of finance — is running around saying he would like to get rid of property taxes.Glenn Hegar, a state senator who won the Republican nomination for comptroller in this month’s primary, was unequivocal in his remarks about the fairness of those taxes at a Tea Party forum in February, as reported by the Killeen Daily Herald: “As long as we pay taxes we have to ask, do we really own our property?”

His opponent, Mike Collier, a Democrat, is trying to turn a 26-second video snippet of Hegar suggesting an end to property taxes into a fundraising and vote-getting machine. He contends that the Republican is proposing a sharp increase in sales taxes to offset the elimination of property taxes.

Hegar, who has been in the Legislature since 2003, is not running away, other than to say he might phase out the tax instead of ditching it all at once. “I have said since I first ran that I preferred a consumption tax,” he said this week. “I have not backtracked in any way from any statement.”

The idea of eliminating property taxes falls nicely in line with some of the original leanings of the Tea Party, which began with concerns about government spending, debt and taxation. It rolls easily from a political tongue: Kill property taxes and rely instead on consumption taxes, which taxpayers control by simply controlling their spending.

And it is not a fringe idea, unless you consider the Republican Party of Texas part of the fringe. “Abolishing property taxes” and “shifting the state tax burden to a consumption-based tax” are the first two items listed under the “State Tax Reform” heading in the party’s current platform. There’s a line at the bottom of that list to prevent the state’s real estate agents from jumping out of their seats, proclaiming the party’s opposition to “all professional licensing fees and real estate and similar transaction fees or taxes.” The party is also against the creation of a state property tax (current property taxes are local) or a state income tax.

From the Center on Budget and Policy Priorities: More Evidence That You Can’t Lure Entrepreneurs With Tax Cuts

This cuts against an argument commonly made by Texas politicians:

Cutting state taxes to attract entrepreneurs is likely futile at best and self-defeating at worst, a new survey of founders of some of the country’s fastest-growing companies suggests. The study, which is consistent with other research, should be required reading for state policymakers — especially those in Michigan, Missouri, Nebraska, Ohio, Oklahoma, South Carolina, and Wisconsin who are pushing for large income tax cuts.

The 150 executives surveyed by Endeavor Insight, a research firm that examines how entrepreneurs contribute to job creation and long-term economic growth, said a skilled workforce and high quality of life were the main reasons why they founded their companies where they did; taxes weren’t a significant factor. This suggests that states that cut taxes and then address the revenue loss by letting their schools, parks, roads, and public safety deteriorate will become less attractive to the kinds of people who found high-growth companies. (Hat tip to urbanologist Richard Florida for calling attention to the study.)

. . . The new survey provides further evidence for these arguments. It found that:

- “The most common reason cited by entrepreneurs for launching their business in a given city was that it was where they lived at the time. The entrepreneurs who cited this reason usually mentioned their personal connections to their city or specific quality of life factors, such as access to nature or local cultural attractions.”

- “31% of founders cited access to talent as a factor in their decision on where to launch their company. . . . A number of founders also highlighted the link between the ability to attract talented employees and a city’s quality of life.”

- “Only 5% of entrepreneurs cited low tax rates as a factor in deciding where to launch their company” and only 2% mentioned “business-friendly regulations” and other government policies. The report’s authors concluded, “We believe that the lack of discussion of these factors indicates that marginal differences in these areas at the state or municipal level have little influence on great entrepreneurs’ decision-making processes.”

Kansas, North Carolina, and Ohio have cut personal income taxes significantly in the last two years, and in each case the governor argued that it would give a big boost to creating or attracting new firms. This new study provides more compelling evidence that that’s the wrong approach. Let’s hope other states don’t start down the same dead-end path.

$19 billion a year in tax incentives used to lure businesses to Texas

The NYT takes a look at the means used to lure businesses to Texas and who benefits from them:

Under Mr. Perry, Texas gives out more of the incentives than any other state, around $19 billion a year, an examination by The New York Times has found. Texas justifies its largess by pointing out that it is home to half of all the private sector jobs created over the last decade nationwide. As the invitation to the fund-raiser boasted: “Texas leads the nation in job creation.”


Yet the raw numbers mask a more complicated reality behind the flood of incentives, the examination shows, and raise questions about who benefits more, the businesses or the people of Texas.

Along with the huge job growth, the state has the third-highest proportion of hourly jobs paying at or below minimum wage. And despite its low level of unemployment, Texas has the 11th-highest poverty rate among states.

“While economic development is the mantra of most officials, there’s a question of when does economic development end and corporate welfare begin,” said Dale Craymer, the president of the Texas Taxpayers and Research Association, a group supported by business that favors incentives programs.

The Texas Tax Reform Commission

The story below refers critically to tax reforms in Texas' which happened in 2006.

However, as many acknowledge, Texas has a structural deficit created by insufficiencies in the margins tax that was part of the state's 2006 tax reform. Some lawmakers, most notably Sen. Steve Ogden, R-Bryan, the Finance Committee chairman, wanted to fix the margins tax now. But their pleas fell on deaf ears.

So we can prep for future discussions of the Texas budget, here's background on the reform measures and the assessment of its impact on the current fiscal state of Texas. It continues to be a controversial change in the state's tax policy.

- Archive: Texas Tax Reform Commission.
- Wikipedia: Texas Tax Reform Commission.

- Texas Tax Reform Commission Releases Tax Plan.
- Letter from Comptroller to Perry.
- Governor's Office: Property Tax Relief and Appraisal Reform.
- WSJ: Perry's Tax Plan Runs Unto Criticism.
- Tax Foundation: Texas Margin Tax Experiment Failing.
- Understanding the Texas Franchise — or “Margin”—Tax