Analysis: In Senate, Spotlight Squarely on Tax Cuts

Here's some free advice to anyone hoping to see some love in the next state budget: Get in line. Tax cuts are at the front of the queue.

Lt. Gov. Dan Patrick announces the filing of SB1 with a series of property and business tax cuts for Texans on Feb. 24, 2015.

If you are hoping to get some idea or program into the next state budget, take your place in line behind tax cuts. In the Senate, those come first.

Other things, like debt reduction, are starting to edge their way into the line, but tax cuts for homeowners and businesses still lead the parade.

Lt. Gov. Dan Patrick wrote editorials for the state’s newspapers and appeared on weekend talk shows to sell voters on Senate plans for a property tax cut.

The Senate is calling this “Tax Relief Week” and promising voters — in a synchronized series of news conferences and Finance Committee hearings — that it will cut their property and business margins tax bills.

The governor has weighed in, too, saying a budget without a business tax cut would get a veto, and endorsing the idea of limiting increases in property tax bills.

All of this is in competition, to some extent, with other claims to the state’s unusually fat bank accounts. The usual budget supplicants are lined up — sympathetic or not, depending on your preferences — and there are some calls for one-time spending on worn-out government buildings, roads, pension liabilities and the like.

The promotional efforts by Patrick and others mark an effort to establish priorities, and their first order of business is tax cuts.

The business margins tax is an easy thing to change, if the state can afford to give up some or all of the revenue it produces. It is a legislative creation, and the Legislature can do as it pleases with it.

Tax cuts for property owners are complicated by the fact that the state of Texas does not levy property taxes. It cannot set them, either, which means it cannot simply lower the rates and let taxpayers enjoy the bounty.

Lawmakers are clever, however, proposing higher property tax exemptions for homeowners and increased restraints on local governments’ ability to raise those taxes without public votes.

You can see where this is going: The local governments that depend in part on property taxes don’t much like this kind of state interference. When the Legislature cuts business taxes, it is shorting itself; there is little protest. When it cuts the finances of local governments, lawmakers hear the objections of every city council, school board and county commission.

It’s a tougher piece of politics.

And if recent experience holds, the relief won’t last. Property values are changing all the time, as are local government budgets, and whatever the state does, it can’t lock in those local property tax rates.

The state can tinker, but its efforts to lower property tax bills inevitably erode. That happened in 2006, when the state ordered school districts to cut property tax rates and increased its own spending on public education to make up some of the resulting difference in school budgets. Now, less than a decade later, it’s hard to find anyone who remembers getting a big property tax cut. Conversely, it’s easy to find politicians from that time who grumble that they never got any credit for the hard votes they took.

Also, whatever cuts they make now will be under scrutiny again within a year or two if the courts continue to say the state’s school finance system is out of whack.

School finance looms over the current effort. A state district judge in Austin found the current funding scheme unconstitutional. The state has appealed to the Texas Supreme Court, which could hear the case late this year (the court has asked lawyers to file their briefs in August, and oral arguments will come sometime after that). If the Supremes decide that the school finance system needs an overhaul, taxes will be part of the conversation — including the property taxes under discussion now.

That’s true of business margins taxes, too. The current business tax was an invention of those 2006 sessions; lawmakers wanted to dump the old franchise tax with a lower-rate tax on a greater number of businesses. Since then, lawmakers have whittled away at the number of taxpayers by exempting smaller businesses from the tax. This year, there is a proposal to do that again, bolstered by Gov. Greg Abbott’s promise to veto a state budget that does not include lower taxes for business.

That might be one of the safest veto threats in state history: Legislators had already factored those cuts into their early drafts of the state budget.

Tax cuts are not a question of if, but a question of how much — and how long they will last.