Thursday, May 9, 2019

#TXLEGE: Larry Taylor's Quiet Revolution; Version 2.0

"For he who sows to his flesh will of the flesh reap corruption, but he who sows to the Spirit will of the Spirit reap everlasting life."
Galatians 6:8

[Note: You can read our original piece "Larry Taylor's quiet revolution" from last session here.]

He did it again!!!

Last session, the house passed a terrible 'school finance' bill, which the Senate altered in ways that would have produced some pretty cool long-term outcomes.

This session, to this point, it looked like the only difference was that the house wanted to spend six times as much.

Then something interesting happened in the Senate:
The Texas Senate approved a bill Monday to massively overhaul public school finance, but it did so while backing away from a proposal to use an increased sales tax to lower school district property taxes.


The bill no longer includes an expansion in the homestead exemption from school district taxes. It lowers property tax rates by 10 cents per $100 valuation, instead of 15 cents, saving the owner of a $250,000 home $250 instead of $375.


Instead, the bill creates a Tax Reduction and Excellence in Education Fund to fund school district tax relief. State Sen. Kirk Watson, D-Austin, said a working group came up with a plan to get $3 billion from several sources, including the severance tax on oil and gas extraction and an online sales tax.

"This does not increase any taxes of any kind,” he said.

[Note: Emphasis added.]
There's a lot to like in this approach.


10-cent Rate Compression:

This is real, meaningful, tangible tax relief.

It's not everything we want.  It's not everything we need.  But it's a start.

And it's an offer that should be accepted while its on the table.

We can do another 10 cents next session.


Severance Tax:

The Senate might have set out to solve school finance...but they may have just, unintentionally, solved the Rainy Day Fund.

In Texas, the "Rainy Day Fund" (formally called the economic stabilization fund), is funded through Oil and Gas severance taxes.  When the energy industry does well (*), it begets windfall levels of revenue for state government.  Windfall revenues inevitably creates temptation to spend.

It's why, during every session in recent memory, there's been serious pressure to raid the rainy day fund.

A politician who is tempted to spend...will eventually spend.

It's human nature.

By dedicating severance taxes to property tax buydowns, you change the entire incentive structure surrounding the rainy day fund.

Once again, this is an offer that should be accepted while it's on the table.

* -- Which, as long as the fracking boom is allowed to continue, means essentially forever moving forward.


Bottom Line: A 10-cent rate compression alongside macroeconomic reforms to the severance tax is a pretty dadgum good place to start....

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