Wednesday, March 09, 2005

Study Finds Poor Texans Would Bear Brunt of Tax Changes


By Mike Ward, W. Gardner Selby
Wednesday, March 09, 2005

As House members publicly fought Tuesday over how to fund and manage schools, cracks began showing in efforts by Republican leaders to enact a multibillion-dollar tax plan to pay for proposed cuts in property taxes.

Fueling the growing dissent over the tax bill was a new state study that showed that the tax burden would increase for households earning $100,000 a year or less, even after taking into account proposed property tax cuts approved this week by a House committee.

In a surprise move, Gov. Rick Perry warned publicly that a defeat of the tax plan, House Bill 3, would prompt a special legislative session, a message he acknowledged was intended to "keep the process moving" by securing House approval of a plan, any plan.

"The most important part of what's going on right now is to move the process forward, not to kill this," Perry said, noting that the Texas Constitution prohibits action on any measure that has the same substance of a proposal already voted upon.

"If you kill it now, you don't get to take it up again. You're through. You don't get another chance at it until a special session. . . . We don't need to do that. We need to move the process forward."

House Speaker Tom Craddick, R-Midland, echoed that conviction last week in discussions with business groups and Sunday in a closed-door meeting with the House Republican Caucus as he courted support for the House tax plan, according to people who attended the sessions.

Some business groups and conservative activists worked feverishly behind the scenes Tuesday to defeat the House tax plan — a bill that would replace the current franchise tax with a new payroll tax; expand sales taxes to include newspapers, auto repairs and bottled water, among other things; and impose a 3 percent tax on snack foods.

Bill Hammond, president of the Texas Association of Business, the state's largest business group, said its executive committee failed to reach agreement on the plan Monday, meaning it has no position on its approval or rejection.

"You can draw your own conclusions," Hammond said.

Bill Allaway of the Texas Taxpayers and Research Association, who testified recently in favor of a committee version of the tax plan with reservations, said groups representing a range of business types have understandable difficulty giving "unequivocal" support to any plan.

Emblematic of the growing disquiet was this take on the topic e-mailed Tuesday to about 17,000 Texans by conservative activist Jim Cardle of Austin. Calling the payroll tax "a recipe for disaster," he said, "it stinks. It's going to kill jobs. It's a hidden income tax."

As part of the behind-the-scenes maneuvering on the bill, Craddick sought a letter last week from several groups representing business interests. By Tuesday, just two days before debate on the tax bill could begin, the letter still had not been delivered.

Ron Dipprey of the Texas Chemical Council said there has been concern that the plan favors big companies and hurts small ones.

"We want to do it in a way that reflects a diverse cross-section of business," Dipprey said. "The speaker will ultimately have to decide if he wants the letter."

A draft of the letter, obtained by the Austin American-Statesman, calls the tax plan "a meaningful first step in the process of building an effective, balanced tax system that is better able to support the growing needs of our state."

As debate continued into the night Tuesday on changes to school funding formulas, House Bill 2, Republican leaders were working with several heavyweight business groups to push the tax bill through with the payroll tax included.

Nose counting in the House indicated that the vote will be close. It takes 76 votes in the 150-member body to pass legislation.

In its new study, the Legislative Budget Board calculated that the proposed tax changes would increase the amounts paid by a large percentage of Texas families. On average, only families with incomes of more than $100,000 a year would save more from the proposed property tax cuts than they would pay in higher sales and cigarette taxes, or absorb in lower wages because of the payroll tax.

In its analysis of the proposal, the Center for Public Policy Priorities, an Austin think tank, said Texas would have the "highest state sales tax rate in the nation": 7.25 percent, a full penny more than the current tax.

"HB 3 would appreciably increase the regressivity of Texas' tax system by increasing the tax load on lower- and middle-income families, while decreasing the taxes paid by upper-income families," the center's analysis said.

A separate analysis from Comptroller Carole Keeton Strayhorn showed that HB 3 would help create 48,000 jobs by 2007 and 80,600 jobs by 2010. In addition, the bill would boost personal income in Texas by $4.16 billion by 2010.

By contrast, Strayhorn's office on Friday found the House's original tax plan to be more than $1 billion short of covering the cost of the proposed school property tax cuts, leading the tax-writing Ways and Means Committee to raise the proposed sales and payroll taxes and to suggest the snack tax late Monday.

Ways and Means Committee Chairman Jim Keffer, R-Eastland, defended the plan Tuesday as a job-creator that will allow all Texans to prosper.

"If we're helping people either expand in Texas — job-wise, business-wise — or relocate in Texas where they're creating jobs hopefully with good benefits . . . if we're successful, I think we all prosper," Keffer said.

Effective tax rate change under House Bill 3

The proposed state budget would increase the effective tax rate for all households by 1.24 percent, but households with lower incomes would see a larger increase.
Family income Percent change
$0 to $13,415 5.57
$13,415 to $22,833 5.18
$22,833 to $31,735 4.96
$31,735 to $41,463 4.63
$41,463 to $51,750 4.31
$51,750 to $64,325 3.75
$64,325 to $79,271 2.68
$79,271 to $100,593 1.66
$100,593 to $140,853 -0.47
above $140,853 -2.87

Source: Legislative Budget Board

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