On the national level, the President's Tax Reform Panel has met, filed its report, and apparently faded from the scene. But state tax efforts are continuing to percolate, especially in states that are under the gun to modify the funding of public schools to satisfy constitutional equal protection provisions.
Texas is one of the states attempting tax reform. It will not be easy in the climate created by the national fixation on cutting taxes, ignoring deficits, and piling on debt. Texans' long-time aversion to taxes will make it even harder to raise sufficient revenues to meet today's needs. But the Texas Tax Reform Commission (TTRC), a 24-member bipartisan commission made up primarily of representatives from business that was appointed by Governor Perry last fall, see TTRC announcement, has a July 2006 deadline set by the Texas Supreme Court. The court concluded that the state's property-tax system for funding its public schools was unconstitutional. See TTRC release. The state legislature has been unable to reach an agreement on the best system for raising school funding, so it is hoped that the commission can provide a foundation for legislation.
There are, of course, a number of conservative voices in Texas that clamor for reduction in taxes as the only acceptable tax policy reform. See this entry on the Texas Public Policy Foundation website, in which a Texas congressman rails against any U.S. tax policy that does not cut taxes. His version of tax reform is simple, since it does not require any nuanced considerations about funding important programs.
"True tax reform is as simple as cutting or eliminating taxes. No studies, panels, committees, or hearings are needed. When reform proposals seem complicated, they almost certainly don’t cut taxes." Id.
The Panel, however, appears to have a variety of ideas before it. Chair John Sharp is apparently considering an "alternative margins tax" for businesses, which have been viewed as too easily escaping Texas' franchise tax. See this description of a panel discussion at the Texas Association of Business conference. The tax would have gross receipts minus either personnel costs or cost of goods sold. According to the release, businesses are not entirely supportive of the proposal. Some want a consumption or sales tax, and some have reiterated a call for lowering tax rates. Since Texas is already near the bottom of the states in its tax burden (41st out of 50, id.), it is difficult to see how lowering business taxes still further will benefit the state. Critical infrastructure and investment in education and other projects that build human capital will be shortchanged without sufficient tax revenue. As one of the panel discussants noted:
"Too often the statement is that a low tax is good for business and a high tax is bad for business. What business needs to understand is the economic consequence of taxes, especially when it comes to limits that must be placed on public infrastructure such as education." Id.
Another proposal would establish a Texas income tax. See the Center for Public Policy Priorities description.
Yet another proposal apparently under consideration is raising the sales tax to 10%, including services, and eliminating the franchise tax. See this short piece on the Texas Society of Certified Public Accountants website. The use of a sales tax, of course, will be more regressive than other forms of taxation. See this criticism of relying on a modified Value Added tax and sales tax to replace the property tax. The concern is that the system will be even more regressive than the current one.
The Texas Tax Reform Commission will not be able to satisfy everyone, so it should aim high from the beginning. It should consider all the alternatives, including an income tax. And it should try to season the business push for zero taxation with a reasonable measure of appreciation for the importance of the many programs that taxes fund, including education.
(Thanks to David Gamage at UT, Austin, for drawing this issue to the attention of TaxProf readers.)
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