In seeking a “fairer way” to overhaul Texas’ inefficient business tax structure, Gov. Rick Perry named members to the bi-partisan Texas Tax Reform Commission chaired by John Sharp. Sharp is the state’s former comptroller and a Democrat, according to the governor’s prepared statement.
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The work of the commission was made more critical when the Texas Supreme Court issued its ruling in a school-finance lawsuit, finding that the statewide property tax was unconstitutional. The high court gave the Texas Legislature until June 1, 2006, to address this issue, according to the prepared statement. The commission held public hearings throughout Texas to allow all Texans to share their ideas.
“The commission members will provide a broad, fresh perspective on the challenges ahead as we look to modernize our tax structure, reduce property taxes, and provide a long-term, stable source of revenue for our schools,” Perry stated. Sharp said in the prepared statement, “I look forward to working with this talented group of individuals to design a plan that will make our tax system fairer, encourage continued economic growth and win support in both chambers of the Texas legislature.”
In the prepared statement, Perry said, “If Texans want a fairer and broader business tax without loopholes, a stable source of revenue for our children’s education, and substantial property tax relief, then we’ve got a plan that works for them.”
According to the Texas Association of School Boards March 2006 Legislative Report, the recommendations have several features. Any property tax cut would be effective immediately, with property owners realizing a 17 cent property tax rate drop over 2006-2007 and another 33 cents over 2007-2008. Any business tax structure reforms would begin next year when school property tax rates would fall another $1 per $100 in valuation.
In the plan, all rate decreases would be recouped by increased taxes on tobacco products and a portion of the current state surplus, as well as increased tax compliance procedures. The proposed taxes on a pack of cigarettes would increase from $1 to $1.41, generating an estimated $800 million annually. The Sharp Commission report also recommends increased fees for certain professions including:
• Interior Designers
• Land Surveyors
• Landscape Architects
• Physician Assistants
• Property Tax Consultants
• Real Estate Brokers
• Securities Dealers
Perry said in the prepared statement, “It is a responsible plan that appeals to Texans’ sense of fairness, encourages investments in jobs and workers, discourages harmful addictions like smoking, and utilizes a portion of the surplus to give the people a well-deserved tax cut without leaving future legislatures a mountain of debt.”
Taking on the negative side of the issue, The Center for Public Policy Priorities released a second position paper critical of the Sharp Commission tax plan. Their report sees a continuing deficit and increased tax regressivity, as well as diminishing equity between school districts, according to CapitalAnnex.com.
The school district equity issue stems from rulings by the Texas Supreme Court requiring that all school districts must be able to generate similar revenue per student at similar tax rates. That situation is not upheld now, with property-wealthy districts raising over $500 per student more that lower-wealth districts at the current tax rate of $1.50. CapitalAnnex.com reports that the increased funding gap created by the Sharp Commission plan would help widen this gap.
The revenue from the Sharp Commission plan’s new business tax is also predicted not to keep up with the need to replace taxes, with elimination of the current corporate franchise tax and lost property tax revenue. Combine this with a current drop in revenue from tobacco products attributed to falling use, the Sharp Commission tax plan would fail to replace lost revenue by an additional $823 million between 2008-2009 and 2010-11, according to Texas Sen. Eliot Shapleigh’s prepared statement. The tax plan specifies full implementation starting with the 2008-2009 biennial.