TTRC: What The Proposal Really Says

Amid all of the media coverage of Rick Perry’s Lumberyard Press Conference and the Texas Tax Reform Commission’s proposal, I’ve noticed that few, if any, media outlets are actually telling the citizenry what is actually contained in the commission’s 34-page report, in the massive draft Tax Reform Bill, or in the tax relief bill.

Here are the summaries of the Commission’s Recommendations from its own report including my commentary:

I. The Legislature should cut school district property taxes for maintenance and operations substantially. With many districts setting rates at or near $1.50 per $100 of valuation, Texans are clearly paying too much in property taxes. The rate should be lowered to $1 per $100 and permanently re-capped at no more than $1.30 per $100 by the 2007 tax year. Reductions for the 2006 tax year sufficient to comply with the Supreme Court’s mandate must be provided immediately.

Whoop! Whoop! Pending constitutional crisis again! Remember that the $1.50 M/O cap was declared an unconstitutional property tax? How is capping M/O taxes again, and at a lower rate, not the same thing? Furthermore,  by making some changes effective in 2007, the TTRC didn’t consider that the Lege could further tinker with this plan in the next regular session and basically thwart the entire thing lock, stock and barrel.

II. The Legislature should reform the state’s franchise tax by:
• Broadening the base of businesses that pay into the system and eliminating loopholes that have allowed many businesses to avoid paying their fair share.
• Cutting the franchise tax rate from 4.5 percent to 1 percent and changing the underlying base of the franchise tax.
• Basing the franchise tax on a business’ margin by allowing each business to choose between two calculations: deducting either the cost of goods sold or employee compensation (including health insurance, pensions and other
benefits) from its total revenue.
• Doubling the small-business exemption from $150,000 to $300,000 in total revenue and exempting sole proprietors and non-corporate general partnerships.

“Basing the franchise tax on a business’ margin by allowing each business to choose between two calculations?” This sounds eerily like “Dr. Deuell’s Tax Tonic,” a proposal made by State Sen. Dr. Bob Deuell last January.

III. The Legislature should raise tobacco taxes, including raising the tax on cigarettes by $1 per pack.
IV. The Legislature should implement anti-fraud measures to boost state tax collections, including increasing the Comptroller’s audit and enforcement activities and implementing an improved tax system for the sale of used cars.
V. The Legislature should use a portion of the state surplus to buy down property taxes. Using some of the state’s surplus would avoid the need for increases in other fees and
taxes, such as the state’s sales tax, which is already among the highest and broadest in the nation.
BENEFITS OF THE RECOMMENDATIONS
Texans will get a $6 billion reduction in property taxes – the largest property tax reduction in history. Home ownership would be more affordable for millions of Texans.

Recommended reforms to the franchise tax would encompass a broader cross-section of the state economy and be a fundamentally fairer way of funding our children’s education or providing additional property tax relief.
The reforms to the existing franchise tax would apply to those businesses with state-provided liability protection, as was originally intended.
Unlike earlier proposals for franchise tax reform, businesses would be rewarded for creating more jobs and providing health care and pensions.
The state would pick up an estimated 50 percent of the costs of funding public education, a dramatic increase over the 34% level expected for fiscal 2007.

OK. Nice that the state will now fund 50 percent of the costs of public education. However, this plan isn’t going to support that level of funding well into the future—in part because it isn’t based on recurring revenue.

Still more:

Doubling the small-business exemption from $150,000 to $300,000 in total revenue wouldhelp small businesses prosper and grow.

The plan would reduce the amount of money recaptured and re-directed to other school districts by Robin Hood.

Hold it! “the plan would reduce the amount of money,” recaptured and re-directed by Robin Hood. I though the purpose of this entire exercise was to eleminate Robin Hood in its entirety. Are they now saying it is not being eleminated?

The report also gives some interesting options to the Legislature:

Alternatively, the Legislature could finance the entire amount of property tax relief immediately by retroactively imposing the reformed franchise tax described in this report.

So, is this in lieu of spending surplus funds or what?

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