With the first round of the Legislature's biennial budget dance almost complete, the Senate has made its ideas for state finance — particularly when it comes to tax cuts — much clearer than whatever the House is thinking.
In a series of press conferences and committee hearings, Lt. Gov. Dan Patrick and various senators have laid out their plans to increase homestead exemptions, giving the average homeowner something like $206 in relief each year.
They want to increase the size of companies that are exempted from the state’s franchise tax, roughly cutting in half the number of companies that pay that unpopular levy.
They even lined up their own outside lobby force in the form of the thousands of Texas Realtors who will be promoting the Senate’s proposal for a constitutional ban on sales taxes on property transactions.
The House has been a lot quieter. There are some ideas in the works, but the marketing — selling this to the public — all seems to be on the Senate’s end of the Capitol.
The House has finished its budget, which is on its way to the Senate. That chamber will approve its own version in the next few days, and then the reconciliation grind will be underway. Tax cuts might be one of the biggest differences.
It’s easy to reduce budget debates to the hot spots like the House’s salacious and titillating dialogue over funding for programs that promote abstinence and prevent HIV, or the agreements to pull back from what had shaped up as a big vote on public funding for private schools, or about whether the state should allow the children of undocumented immigrants to pay the lower tuition rates for in-state students at Texas colleges and universities.
All of that is important. But so are some things that were barely noticed at all, like the $2 billion that got put on a high shelf out of everybody’s reach as this week’s 17-hour House debate on the budget churned along.
That money, House Appropriations Chairman John Otto told his colleagues, is for tax cuts. But it’s not enough money to make the same tax cuts contemplated by the Senate, which wants to set aside $2.5 billion or so to pay for those higher homestead exemptions from property taxes.
The Senate’s tax cut plan costs money — its proposed reductions in property taxes count against the constitutional cap that prevents state spending from growing faster than the state economy.
That’s because the state government does not levy property taxes — local governments do. Cutting a local tax — school property taxes, for instance — often means the state is asking another government to lower its tax and assuring that local government that the state will make up the lost revenue. In the case of property taxes for schools, the state is actually spending money because it has to write that make-up check.
Cutting state taxes doesn’t count as spending. When it cuts its own taxes, the state isn’t sending money out, but reducing the amount coming in. The state no longer gets that money, and can’t spend it. Here’s the part that’s important to the budget-writers: Cuts in state taxes don’t count toward the spending cap.
The House wants to look at cutting state taxes and then using some of the money that Otto hid on the shelf for other things, like public education. That’s one way to stay under the spending cap, cut taxes and increase spending on education. It might even lower property taxes; school districts have had to raise their taxes, in part, in response to state budget cuts. If the state spends more, there will be less pressure.
Whether that would actually prompt any districts to lower rates is a subject for another day. Even if the districts didn’t lower rates, legislators could claim the first sales tax cut in state history, lower taxes for business and more money for schools.
The Senate’s plan — lower taxes for business, higher homestead exemptions and a constitutional amendment that throws a golden bone to the Realtors — is pretty clear.
That’s the plan getting attention, because the Senate is talking publicly about its ideas. The House? Not yet.