When Is a Tax Not a Tax? Ask the GOP.
The House tax bill passes, but will it actually help Texas schools?
Okay, Republicans are not exactly happy in fact, some are downright rebellious but the House rank-and-file dutifully passed new taxes in House Bill 3, all with the blessing of anti-tax zealot Grover "You Signed a Pledge Card" Norquist, of the Washington-based Americans for Tax Reform. Republicans argued, and Norquist eventually agreed, these new taxes were not really taxes because the result, in the end, is "revenue neutral." That's called a "tax shift," not a new tax, even though the Legislative Budget Board concluded that some income brackets i.e., essentially all lower-income Texans would be taxed more harshly than the wealthy, who would in fact see an overall tax reduction (see chart).
Nowhere has fealty to Speaker of the House Tom Craddick, R-Midland, been more apparent this session than on the vote for HB 3. Craddick tapped moderate Rep. Jim Keffer, R-Eastland, chair of the House Ways and Means Committee, to carry the tax bill crafted by the speaker's office. It was passed out of committee in one day and passed off the House floor, after some fits and starts, in a single marathon session. Such quick work on a tax bill is probably unheard of in Texas.
Because the revenue stream for the promised property tax reduction has to be so large it represents $5.4 billion per year Republicans were asked to vote for a reformed franchise tax on compensation that many considered to be no more than a personal income tax on sole proprietors. Craddick apparently evaded that problem by offering three different options for taxation the current tax, a tax on compensation, or a tax on earned profits. That's still not enough revenue for the lost property taxes so the bill also adds a penny on the sales tax, plus a variety of new taxes on, of all things, bottled water, cigarettes, and snack food.
Such a bill delivered the rhetorical high ground to the Democrats. The House minority got up to talk not only about taxing the poor, but also stealing a page from the GOP hymnbook about how such taxes would constrain business. Houston's Scott Hochberg made a big splash when he got an amendment that swapped taxes on diapers for taxes on face lifts. And Patrick Rose of Dripping Springs actually managed an end run around the insurance lobby by inserting language that forced the industry to pay more taxes. The Democrats' real thunder is that HB 3 might provide $5.4 billion in property tax relief, but Texas schools presumably the whole reason for the tax package in the first place would still not see a penny of new money.
House Republicans, publicly polite but not always dutiful, raised their objections to HB 3 during debate. Amarillo's John Smithee, who oversaw last session's insurance reform, fired the first salvo over the personal income tax issue. Burt Solomons of Carrollton showed Craddick he had the votes to put the tax proposal on a September referendum although he pulled that amendment down before the final vote. And nine Republicans including Austin's Terry Keel voted against the final measure. Smithee and Solomons swallowed hard and voted yes.
On the floor, Republicans pondered aloud how their colleagues could go back to their constituents and say they voted against a property tax relief bill. Democrats pondered aloud how any Democrat in the end, the only one who crossed over was Houston's unpredictable Al Edwards could vote for such a regressive mix of taxes. And all at the Capitol, lawmaker and nonlawmaker alike, wondered aloud how the tax bill would play during primary season, which some say is the main reason HB 3 was passed at all.
For most Texans, the House tax vote may soon be nothing but a memory. The Senate will soon pass its own array of taxes, and they won't look like HB 3. Last week, Lt. Gov. David Dewhurst and the Senate leadership said they are ice cold on a number of the House tax proposals, including a tax on compensation. The Senate begins its review of both HB 3 and HB 2 (the related school finance bill) this week.