Business groups on Tuesday praised the House's $4.9 billion plan to cut sales taxes and the margins tax paid by businesses, a contrast with concerns that business leaders raised last month about the Senate's competing proposal.
With Republican leaders in the Legislature intent on approving billions of dollars in tax cuts this session, the question of whether to cut the state sales tax over local property taxes has emerged as a major sticking point between the two chambers.
Last week, House Ways and Means Committee Chairman Dennis Bonnen unveiled a $4.9 billion tax cut plan that would reduce the rates of both the state sales tax and the margins tax paid by businesses. The bills related to his plan, House Bills 31 and 32, were the focus of Tuesday's committee hearing. The Senate’s $4.4 billion plan also cuts margins taxes, while also increasing the homestead exemption to lower local school property taxes.
Dale Craymer, the president of the business-backed Texas Taxpayers and Research Association and a former revenue estimator in the comptroller’s office, told the committee that the Texas sales tax has been raised seven times since it was created in 1961. Bonnen’s proposal to cut the sales tax rate from 6.25 percent to 5.95 percent would be the first time the rate has been cut.
“This will reduce the sales tax rate to a level not seen in 25 years,” Craymer said. Such a cut would have a positive economic impact on both businesses and residents, he said.
Several major business groups have complained that the Senate plan would not provide enough tax relief to businesses, particularly larger ones. At Tuesday’s House committee hearing, representatives for business groups almost uniformly praised Bonnen’s proposal for providing broad tax relief to all Texans, including renters.
“Everybody gets a little bit out of this tax break,” James LeBas, a lobbyist for several business groups including the Texas Apartment Association, told the committee.
Throughout the hearing, Bonnen argued that his plan would have a greater impact on the state’s economy than the Senate’s proposal. He expressed concern that another state-financed property tax cut would have the same fate as the one the Legislature passed in 2006, which was largely unnoticed in the face of rising property appraisals and local property tax increases.
Around the same time Tuesday in the Senate, Lt. Gov. Dan Patrick told reporters that he remained partial to his chamber’s plan.
“Property tax relief is issue No. 1 for me,” Patrick said. “Homeowners need relief, and I look forward to working with the House.”
Gov. Greg Abbott has said he would veto any budget that did not include a business tax cut. Though he has spoken favorably on cutting property taxes, he has not made clear whether he prefers that to cutting the sales tax.
Talmadge Heflin with the Texas Public Policy Foundation, a conservative think tank, told the House committee that he saw few bad options in the tax cut debate. He suggested that lawmakers could sidestep both sales taxes and property taxes in favor of doing an even larger business margins tax cut. Or the Legislature could cut all three taxes.
“You’ve got a winner bill, however you go,” Heflin said.
Some speakers at Tuesday’s hearing warned that lawmakers were being hasty in preparing for so much in tax cuts while the state still has unmet needs.
Dick Lavine, a fiscal analyst with the Center for Public Policy Priorities, a liberal think tank, noted that low oil prices are dragging down the state’s energy industry and might render the comptroller’s January estimate for state revenue overly optimistic.
“You don’t even know if you have this revenue to spare for tax cuts, let alone, permanent tax cuts,” Lavine said.
But Tony Bennett, president of the Texas Association of Manufacturers, argued that concerns about the Texas economy are exactly why tax cuts make sense.
“This tax plan will penetrate the Texas economy at a critical time when oil and gas and the related industries are struggling,” Bennett said.
Several speakers urged lawmakers to hold off on tax cuts in case the Texas Supreme Court requires lawmakers to put more money into public education. The court is set to hear a lawsuit later this year filed by more than 600 school districts against the state on the fairness of the state’s school finance system.
Cheasty Anderson with the Children’s Defense Fund-Texas, said that lawmakers should also be mindful of the state’s rising health costs, including a possible wave of closures of rural hospitals.
“We should not be talking about tax cuts when we stand on the brink of a health care crisis,” Anderson said.
Bonnen argued that the state has the funds to do tax cuts as well as adequately fund critical needs.
“I don’t think it’s intellectually accurate to couch it as an either/or decision,” Bonnen said.
Matthew Watkins contributed to this report.
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