Property Tax Fireworks Flare
Proposals would actually tax Texans more, but with little extra for schools
By Kimberly Reeves and Amy Smith, Fri., July 8, 2005
On Tuesday, the day before the House was scheduled to open debate on a controversial property tax cut bill, House Democrats offered a preview of the fireworks to come: Opponents of House Bill 3 – most of them Democrats – would draw their strongest arguments from the Legislative Budget Board's analysis, which found that the wealthiest 10% of Texans would reap a nice property tax cut under the bill, poor and middle-income folks would get the shaft, and public education would see no new money flowing from what was supposed to be a school finance package.
"It is what it is," said Rep. Garnet Coleman, D-Houston. "It is a property tax relief bill." HB 3 is so bad, Coleman says, it's worse than the HB 3 that barely passed out of the House in the regular session before petering out in a conference committee.
HB 3 also sparked criticism from the Senate. On Friday, Sen. Eliot Shapleigh, D-El Paso, took aim at the Republicans' tax bill. "Are we really talking about tax cuts for the wealthy or are we talking about the real goal, the real debate, which ought to be great schools for Texas?" Shapleigh asked.
But Democrats don't hold the upper hand in either chamber and they're unlikely to be able to change the bill, given the fact that all amendments on Wednesday were mandated to be "revenue neutral."
Gov. Rick Perry loves the new HB 3 so much he's peddling the bill in a new radio ad airing in key Texas markets. Perry promises a $7 billion property tax cut – the biggest in the state's history – by lowering the existing $1.50 cap per $100 valuation. He doesn't mention that the bill would force the vast majority of Texans to pay more taxes each year – the highest sales tax in the nation, say the Dems – to cover the cost of "relief" for upper-income folks. And as the Legislative Budget Board points out, HB 3's 16% sales tax increase to 7.25% "would ultimately increase the taxes of all households by $532 million." Consumers would also, for the first time, pay a sales tax on motor vehicle repairs, bottled water, and computer maintenance.
"I don't remember anyone laying that out as a campaign promise," observed Houston Democratic Rep. Scott Hochberg, whose school finance proposal – introduced as an alternative to the Republicans' HB 2 – was narrowly defeated last week after Speaker Tom Craddick broke a tie vote.
HB 3 also favors some businesses over others. The winners appear to be the financial, insurance, and real estate industries, which would see a $508 million tax cut, due to the spreading of the franchise tax load and the shift to other taxes. But Republican lawmakers don't altogether agree on how to tax the businesses that have historically fed their campaign coffers – a major sticking point between House and Senate conferees in the regular session. (Tax bills must originate in the House, but the Senate offers its own version.) HB 3 follows Perry's lead by closing the franchise loopholes and forcing large corporations to pay up. But other legislators, including House Ways and Means Committee Chair Jim Keffer, R-Eastland, favor some form of payroll tax. Keffer was expected to offer an amendment on that score, even though Perry is squeamish on payroll taxes. Perry's original proposal to increase the state's homestead exemption – favored by Democrats and many Republicans – was sliced from the bill that Ways and Means passed last week on a party-line vote.
The governor's radio ads urge listeners to lobby their legislators to pass HB 3, and Perry is doing his part behind the scenes. As Rep. Senfronia Thompson, D-Houston, put it, "The governor is whippin' them in line." Perry, she continued, "is selling a bill of goods to the public that they are getting tax relief and support for public education, when that is not true." She predicted that many Republicans would heed Perry's arm-twisting and vote for the bill "holding their nose and holding their toes."
Meanwhile, Craddick was caught holding his own nose on the overall school finance package – HB 2 and HB 3. Asked by the Houston Chronicle whether the twin bills would solve the problems outlined in a school finance lawsuit pending before the state Supreme Court, Craddick was refreshingly candid, saying he didn't believe either bill would solve the state's school finance problems. "I don't know all the legal sides of it," he said, according to a transcript printed in the Quorum Report. "I'm just told that it doesn't solve all the problems we've got." Craddick later issued a rehabilitative statement to "emphasize that I am not a lawyer." He went on, "I do think that together the two bills will establish a fair and constitutionally sound school finance system, and we hope that it will pass muster with the courts."
