“Are the Republicans crazy?,” asks Houston’s Steven Hotze in a commentary this week. Not a bad question to ask, considering the growing outcry from small-business owners around the state as they see the impact of Texas’ new business tax taking effect. That this horrendous tax was passed by the Republican Legislature – over the objections of commonsense conservatives who paid attention in high school economics – has the potential to create a political firestorm for a party struggling to re-connect with activists betrayed nationally by tax-and-spend Republicans.
But let’s not forget that the tax was crafted to achieve a particular end: cut property tax rates. That too few leaders in the Legislature felt the urge at the time to control spending meant they had to find the revenue somewhere – and thus the creation of a disastrous new tax. The tax was due May 15, but Comptroller Combs delayed collection until June 15 to give everyone time to try to make sense of it.
At the time the tax was crafted, there were other options on the table, and those should be reconsidered. After all, not only does the state still have a lot of surplus cash left over from 2007, but are expected to have an even bigger surplus come the start of the next legislative session in January ’09.
First, apply all those surpluses to immediate tax buy-down. Don’t hold it, don’t play with it, don’t let is wallow in an undedicated fund for future spending sprees.
Next, limit state spending. Holding all state spending to population and inflation, or even changes in the gross state product, would produce huge surpluses in future years. Apply those surpluses to property tax rate buy-down, and in less than 20 years you have no more school M&O taxes – or, the lege will have cut property taxes by 2/3rds without doing anything scary.
If lawmakers then extended the sales tax to end-user items not currently taxed, the property tax rate could be brought down even faster.
As Hotze notes, the business tax “will inevitably drive the small business person and his employees away from the Republicans into the open arms of the Democrats in November. Incredibly, the Democrats opposed the tax. Once the Democrats gain control you can be sure the business tax will be increased.”
With the state flush with cash, now is the time to end the tax before lawmakers can become addicted to it.