Thursday, April 17, 2014

TPPF's Fantastic Sales Tax Proposal

"But the former governors who were before me laid burdens on the people, and took from them bread and wine, besides forty shekels of silver. Yes, even their servants bore rule over the people, but I did not do so, because of the fear of God."
Nehemiah 5:15

Leave it to the good folks at TPPF to come up with an economic solution to a political problem!!!

The budget debacle of the 83rd Texas Legislature was the result of poor incentives.  The arcane details of the budget process offer large political rewards for increasing spending, while the political benefit of cutting spending is minimal.  TPPF's proposal alters that incentive structure.

If enacted, TPPF's proposal would create a Sales Tax Relief Fund:
To help sustain economic growth in Texas by reducing the growth in government spending, the Legislature should create a Sales Tax Relief (STaR) Fund that could temporarily reduce the state’s sales tax rate in order to return excess revenue to Texas taxpayers. The STaR Fund will be funded in two ways:

“appropriations” by the Texas Legislature directly to the STaR Fund, and

• funds in excess of the ESF’s cap would flow directly into the STaR Fund rather than back into general revenue.

The statute creating the STaR Fund would authorize the Comptroller to lower the sales tax rate for a certain period based on the amount in the STaR Fund.

To calculate how much the Comptroller would reduce the sales tax rate to exhaust these funds over a chosen period, the Comptroller would use the previous year’s sales tax revenue.
In other words, cuts in spending would get translated into immediate and identifiable tax relief instead of getting subsumed in the rest of the budget.

The rainy day fund provision, which might not be a huge deal in 2015, will become more important in the out years.  The Texas Constitution caps the RDF at $14.4 billion, with any additional revenue going into General Revenue.  If it goes into GR, it WILL be spent, whereas a STaR fund would transfer the revenue to direct tax relief.

This is a fantastic idea; obscure budget rules make it easy to spend and difficult to cut.  The problem, unfortunately, is that the same dirtbag politicians who spend all the money are the ones who would have to enact this reform.  But, if we could ever get it enacted, it would structurally alter the Texas Budget to spend less money.

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