Posted on 07/12/2005 8:18:41 AM PDT by Cat loving Texan
House and Senate say they're close, but a deal is far from done.
Companies relieved as Senate drops overhaul plan for school finance
By Jason Embry AMERICAN-STATESMAN STAFF Tuesday, July 12, 2005
Lawmakers have not yet decided how much they will cut school property taxes or raise consumer taxes, but businesses and their lobbyists seem almost certain to be among the big winners of this year's debate over school funding.
The Senate early Monday abandoned its plan to overhaul the state's business tax by tying it to at least 10 percent of a company's payroll and applying it to law firms, medical practices and other partnerships, which now do not have to pay it. Critics said the change would have amounted to a personal income tax on partners. It was the latest in a series of proposed changes to the state's main business tax that failed to catch on.
"People were just flat-out worried about their political hides," said Sen. Steve Ogden, R-Bryan, chairman of the tax-writing Senate Finance Committee.
"They were afraid that a vote on reforming the business tax would be politically troublesome for them in the district. The lobby effort against reforming the business tax was about as strong as anything I've seen," Ogden said. "They were throwing out the income tax bomb and basically diverting attention from the fundamental issue, which was, 'We don't pay taxes now, we don't want to pay any more in the future, but let's claim it's an income tax and see if we can scare everybody.' "
Earlier efforts this year to change the franchise tax included proposals to tax companies' payrolls or gross receipts. Some business groups said those taxes would especially hurt businesses when they're not making money.
"We welcome a business tax that's fair and equitable that everybody pays," said Will Newton of the National Federation of Independent Business, a small-business group that was critical of plans floated in the House and Senate. "The problem for us was having a tax based on things other than your ability to pay."
The Senate and House have now passed a pair of proposals to change the school finance system by reducing property taxes, raising other taxes and rewriting the formulas that determine how much money schools receive. Leaders of each chamber have nine days to work out the differences between their plans before their 30-day special session ends.
House leaders want to give larger cuts in school property taxes than senators do, and the House also is pushing for twice the increase that the Senate wants in the state sales tax.
But the other major sticking point from this year's regular legislative session — the issue of business taxes — is largely gone from the debate.
The House and Senate each started out the year trying to rework the corporate franchise tax, which is either 4.5 percent of a net taxable income or 0.25 percent of net capital.
The tax does not apply to partnerships, since taxing a partner's earnings could be seen as an income tax, which is constitutionally prohibited unless there is a public vote.
About 150,000 businesses pay the franchise tax, with others exempting themselves by reorganizing as partnerships.
Both chambers have now passed plans that would eliminate two strategies that businesses — such as Dell Inc. and the Austin American-Statesman — use to minimize the tax. That change would apply the tax to about 10,000 more businesses. Partnerships owned by individuals instead of corporations, however, would still be exempt.
Some smaller differences over how to apply the tax remain in the House and Senate proposals.
Lawmakers say five out of six businesses in Texas legally avoid paying the franchise tax, a number that would not be significantly changed.
"We've just postponed the day of reckoning," said Ogden, who represents Williamson County. Ogden, calling the franchise tax broken and the tax system outdated, had pushed for a more thorough overhaul but said the plan that the Senate passed early Monday is better than nothing.
In recent months, lawmakers have considered — and dropped — various other proposals that would tax companies' payrolls or gross receipts.
At the start of the special session last month, Gov. Rick Perry said lawmakers should abandon their plans for a business tax overhaul and try to pick up the roughly 10,000 businesses that the House and Senate have since agreed to try to capture. The Perry plan would generate about $860 million over two years for the state by changing the franchise tax, one small piece of paying for more than $7 billion in proposed property tax cuts.
House leaders still tried to push through a payroll tax option, but House members opted to walk the Perry path.
"Anytime you have a tax bill, it doesn't play well at home, and I think that's the main concern," House Speaker Tom Craddick said. "People want property tax relief, they want to see a broader-based tax, but they don't want to vote for any new taxes."
The last attempt at a major change in the business tax came in the Senate, where Ogden proposed allowing voters to decide whether to apply the franchise tax to partnerships in exchange for lower property taxes. He said one reason for the vote was to protect the tax from lawsuits claiming it would violate the constitutional ban on the income tax.
Defenders of the Senate proposal said it would tax business entities and not people, but it could not garner the votes needed to pass.
Ogden said it's just as politically dangerous to vote for the highest state sales tax in the country, 7.25 percent, which the House plan would deliver. But Craddick said constituent surveys in the House show that the sales tax is an easier sell.
"The majority of the Republican members feel like it's a broad-based user tax, and that's what they're for and that's what their constituents are for," he said.
The two sides also must resolve their differences over alcohol taxes. The Senate plan boosts some alcohol taxes by 20 percent, while the House soundly defeated efforts this year to lessen other tax increases by boosting taxes on alcohol.
In addition to the tax negotiations, the House and Senate also must reach agreement on a major education proposal that includes pay raises for teachers, tougher penalties for low-performing schools and a later start for the school year.
That proposal would reduce, but not eliminate, the amount of money that property-wealthy school districts share with districts that are relatively property-poor.
House leaders are pushing to limit the amount of money that a handful of districts with extremely high property values per student must share with the state. That limit would allow some of those districts to raise significantly more money per student than others.
Senators have objected to that proposal, saying it gives a few districts an unfair advantage over the rest of the state.
I like Steve Ogden. He's my rep. He's not afraid to make meaningful comments. On a personal level, I emailed him with a list of concerns and got back a letter via snail-mail with a handwritten response to points in my email. He seems to have a functioning brain. [This is high praise.]
I like Steve Ogden. He's my rep. He's not afraid to make meaningful comments. On a personal level, I emailed him with a list of concerns and got back a letter via snail-mail with a handwritten response to points in my email. He seems to have a functioning brain. [This is high praise.]
Seems to me that if things like over-loaded school administrations with their mulit-million dollar administration buildings, astro turf football stadiums, natatoriums-sp? (indoor swimming pools), and other totally unnecessary building projects were eliminated, there would be no need for any tax raising.
That is the kind of assinine statement that our elected representatives make FAR too often!
WHO do they suppose owns these "business entities?"
That's riiiiight: People!
Astro-turf football fields?
Natatoriums? (natatoria?)
And don't forget the waterpark!
Why Basil, you must have seen the "60 Minutes" feature on the City of Denton!
All those things were financed by the DISD, which then turned right around and told people that, due to a budget crunch, they were cutting off school bus service to anyone that lives within 4 miles (!) of the school.
Since I don't Watch tv, I missed that program. However, nothing surprises me. I had 5 kids go through the Plano School System. They all graduated more than 10 years ago, but I thought some of the things that huge amounts of money were spent on then were outrageous!
Let me understand this, I can deduct state property taxes from my federal return. So with the increase in everything else to make up for property taxes, how is that a good deal?
Its not a good deal, but you now can deduct state sales taxes as well. Congress passed that law late last year.
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