As the Texas House works to balance the state’s budget, some lawmakers are attempting to abolish a tax – a source of revenue whose loss others fear could jeopardize public education to the tune of untold billions. Earlier in the legislative session, the Senate voted to eliminate the franchise tax – a tax on businesses that’s based on gross receipts. The franchise tax brings in $8 billion, during each two year budget cycle. A large chunk of that revenue pays for public schools.
State Rep. Donna Howard (D-Austin) says the tax is needed to fund public education. She is fighting the effort to repeal it.
“We have limited options of revenue streams right now,” Howard says. “One of them is the franchise business tax, which specifically has a lot to do with public education. If we are going to reduce, and eventually eliminate that tax, it leaves us very little in the way of other options – squeezes us even further to meet the basic needs of Texans.”
Supporters of the House bill say eliminating the franchise tax would spur economic growth. Howard acknowledges that the tax is unpopular, but points out that it was created by a bipartisan committee, appointed by then-governor, Rick Perry, a Republican who was no fan of new taxes.
“I’m one of only about 30 legislators still here that was around in 2006 when the bill passed that created this particular margin tax,” Howard says. “It was created from a blue ribbon committee appointed by Perry, headed by [former state comptroller] John Sharp, that had about 24 industries represented. It was agreed upon by business as a way to lower the rate, spread the base, to impact more businesses, to bring them in.”
If the franchise tax were voted down, Howard says, its repeal would be phased out, beginning in 2019. Each biennial phase could mean a maximum reduction of $3.5 billion.
“That’s a huge hit to public education,” Howard says.
The argument that eliminating the franchise tax will spur economic growth and in turn increase revenue to the state doesn’t address the need to maintain stable funding, Howard says. Previous cuts to the franchise tax have reduced the amount of money available for public education, higher education, and other priorities, during this legislative session.
“We continue to look at ways to reduce revenue,” Howard says, “For instance, the hand-ringing that’s going on this session, in terms of finding sufficient funds is the result of policies that were made lass session, one of which was to reduce the franchise tax by 25 percent.”
Howard says the state’s balanced budget, required by law, is misleading.
“There is a lot of misunderstanding surrounding what goes on with our budget. We’re required to have a balanced budget. We do on paper, but it’s through all kinds of mechanisms that are accounting maneuvers – or gimmicks, depending on your perspective.”
She cites funds allocated, but no spent, in order to make the budget balance.
“We still rely on about $4 billion of dedicated funds that were collected for one purpose but are being held back to balance our budget,” Howard says. “We have unfunded liabilities. We have kids sleeping in offices, and dying in the state’s care. We still are not back to funding students at the same level we were prior to the 2011 budget cuts.”
Written by Shelly Brisbin.