Wednesday, May 11, 2005

Senate OKs Bill That Cuts School Property Taxes

If the legislature rules on school finance this session, by all appearances, there will be an even more regressive tax structure primarily impacting Texas' poor. Moreover, "According to an analysis by the Legislative Budget Board, only households with annual incomes of more than $140,853 would realize a net tax cut — an average of 1.52 percent — under the tax trade-off. Other income groups would see average tax increases ranging from about one-half of a percent to more than 4 percent." Read on. -Angela

May 11, 2005, 5:02PM
Proposal for state property tax killed before package's approval
Copyright 2005 Houston Chronicle Austin Bureau

AUSTIN - With the clock ticking on efforts to overhaul Texas' school funding system, the Senate early today approved a tax tradeoff that, sponsors said, would cut local school property taxes by more than $6 billion over the next two years in exchange for higher state taxes.

The measure was approved 21-10 at about 2 a.m. after seven hours of debate. Four Republicans, including Tommy Williams of The Woodlands, and six Democrats, including Rodney Ellis and Mario Gallegos of Houston, voted against the measure.

Before approving the package, senators made two major changes. They killed a controversial proposal to replace most local school taxes with a lower, state property tax, and they restructured a new business tax that had drawn strong opposition from the business community.

The new tax, which will apply to all forms of businesses except sole proprietorships, would allow a company to pay an expanded franchise tax or a payroll tax.

"With the passage of this bill, we can tell Texans that their property taxes are going to be lower and their schools are going to be better," said Senate Finance Chairman Steve Ogden, R-Bryan.

But Sen. Gonzalo Barrientos, D-Austin, cited a legislative analysis that only the wealthiest Texas households would realize a net savings from the tax tradeoff.

The Senate, he said, was "not only ensuring a permanent underclass, we're expanding it."

Senators rejected an amendment by Sen. Royce West, D-Dallas, that would have forced landlords to share their property tax savings with renters, who account for one-third of Texas residents and 53 percent of Houstonians, according to the Texas Apartment Association.

Senators also rejected an attempt to legalize video slot machines at racetracks and on Indian reservations, despite arguments by Gallegos, the amendment's sponsor, that the expanded gambling would raise $2 billion for education or other programs over the next two years.

Removal of the state property tax may make it easier for House and Senate negotiators to reach a compromise on a tax overhaul before legislators adjourn on May 30, Shapiro said. Speaker Tom Craddick has said there is strong House opposition to a state property tax.

Lt. Gov. David Dewhurst said most senators still favored a state property tax as the most equitable way to raise money for public education, but added, "at the end of the day we want to move the ball forward."

Senate Education Chairman Florence Shapiro, R-Plano, said it also would be difficult to sell a state property tax to Texas voters, who would have to approve it as a constitutional amendment. The proposal also had threatened local homestead exemptions, a form of tax break, for about 400,000 Harris County homeowners.

Without the state property tax, Ogden, the tax bill sponsor, amended the bill to reduce cuts in school property taxes from the 40 cents per $100 valuation initially planned by the 2006-07 school year to 35 cents.

Some see stalemate
The state property tax was only one of several significant differences between the House and Senate tax plans. Some Capitol insiders already are predicting the regular session will end without a new school funding plan, which the governor and legislative leaders have labeled a top priority.

But Shapiro disagreed.

The new franchise tax option would be 2.5 percent of a base that includes a company's taxable income plus employee compensation, with $30,000 per employee deducted from the base up to half of the total compensation.

The payroll tax option would be 1.75 percent up to $1,500 per employee.

The minimum tax a company would have to pay, however, would be equivalent to one-quarter of one percent of a company's gross receipts in Texas.

The Senate unanimously adopted the change which replaces a plan drafted by the Senate Finance Committee to tax a combination of a company's income and payroll.

The House has approved a tax bill that also offers an option to businesses, but unlike the Senate it doesn't set a minimum.

The Senate package also includes a half-cent per dollar increase in the sales tax, a 75-cents per pack increase in the cigarette tax and a 25 percent increase in alcoholic beverage taxes.

The bill sparked controversy with the release this week of a legislative analysis showing that the Senate tax trade-off, like a bill approved several weeks ago by the House, would provide a net tax cut for only the wealthiest Texans.

Dewhurst, however, said the Senate plan, which he played a key role in drafting, would provide significant cuts in local school property taxes, which are unpopular among many Texans.

Ogden blamed much of the inequity in the tax bill on the increase in the cigarette tax, which would dig deeper, proportionately, into the pockets of low-income smokers.

The increase would almost triple the current cigarette tax, now set at 41 cents per pack, but is less than the $1.01 per pack jump approved by the House.

According to an analysis by the Legislative Budget Board, only households with annual incomes of more than $140,853 would realize a net tax cut — an average of 1.52 percent — under the tax trade-off. Other income groups would see average tax increases ranging from about one-half of a percent to more than 4 percent.

Several hundred thousand families who use the Lone Star Card to receive food stamps and welfare benefits would receive a sales tax rebate worth about $10 a month in the form of cash or additional food stamps.

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