Posted on 03/22/2006 2:01:44 PM PST by K-oneTexas
New business tax offered as finance fix Sharp says his panel has a way to pay for one-third cut in school property taxes.
By Jason Embry, W. Gardner Selby AMERICAN-STATESMAN STAFF Wednesday, March 22, 2006
A new business tax, a $1-per-pack increase in the cigarette tax and a share of the state's surplus would give Texas enough money to cut the property tax rate for school operations by one-third, the head of a panel studying tax changes said Tuesday.
Former state Comptroller John Sharp, tapped by Gov. Rick Perry last year to lead the Texas Tax Reform Commission, said the commission next week will recommend the new business tax to replace the antiquated corporate franchise tax. Lawmakers will take up the proposal in a special session on school finance beginning April 17.
Harry Cabluck ASSOCIATED PRESS
John Sharp Panel's leader says money from businesses, cigarettes, surplus would total $6 billion.
The tax on businesses would be based on their gross receipts but allow them to deduct from that either their employees' compensation, including benefits, or their manufacturing and production costs, also known as cost of goods sold.
"Under this tax, anytime you hire somebody, you're rewarded," Sharp said Tuesday. "Anytime you provide an employee with health care, you're rewarded."
The tax will raise about $4 billion per year and capture many businesses that now avoid the corporate franchise tax by setting up tax-exempt partnerships, Sharp said.
The commission also will recommend increasing the cigarette tax and using about $1 billion of the state's $4.3 billion surplus. That surplus is expected to grow before April 17.
Sharp said he does not plan to recommend an increase in the general sales tax.
All told, Sharp said, the plan will yield nearly $6 billion a year that would replace money that would be lost through school property tax cuts.
School districts that now tax at the maximum allowed rate of $1.50 per $100 in assessed property value for maintenance and operations could reduce that rate to $1, he said. They could still tack on taxes to pay for construction.
Under Sharp's plan, the state's $1.50 cap would stay the same or be reduced slightly.
The Texas Supreme Court ruled late last year that local school boards have lost discretion in setting tax rates because they are forced to tax at or near the maximum rate to raise enough money to meet state and federal demands. The judges gave lawmakers until June 1 to restore that discretion and threatened to cut off state funding for schools if the system is not fixed. Sharp said his plan meets the court's mandate.
Sharp's commission will formally roll out its tax proposal March 29 and take public testimony March 31.
Business groups are watching closely, but many are reserving comment until they see a formal proposal.
The head of the nascent Texas Association of Manufacturers said Tuesday that the group "remains encouraged by the direction of the plan."
Glen Rosenbaum of the Law Firm Legislative Coalition, a group of 18 firms, said he's concerned that the tax Sharp has discussed could be tantamount to a personal income tax on business owners, since it may tax their earnings — a charge Sharp denies. The Texas Constitution prohibits a personal income tax without voter approval.
Law firms are among the many professional services that have legally avoided the franchise tax.
"Our goal has been to try to craft a proposal that will tax us on a roughly equivalent basis to what the franchise tax would yield if applied to our firms," Rosenbaum said.
And Dr. Robert Gunby, a Dallas physician and president of the Texas Medical Association, said his group will look to see whether the plan takes into consideration the free care that doctors provide, as well as the government-funded health care programs that often reimburse them below their actual costs.
The Legislature tried repeatedly last year to find a way to pay for the kind of property tax cut that Sharp is proposing, but that effort was derailed at several points: The House and Senate could not agree on how to split the burden between businesses and consumers; businesses lobbied furiously to avoid a new tax; and the tax proposals were linked to an overhaul of the state's public education system that was wildly unpopular among educators, Democrats and some Republicans.
New barriers may emerge. Perry and Lt. Gov. David Dewhurst again sounded conflicting expectations Tuesday about what lawmakers should try to accomplish in the next two months.
Perry wants to focus first and foremost on tax changes, saying teacher pay raises and other education issues may have to wait.
But Dewhurst, who, like Perry, addressed the manufacturers group Tuesday, said he wants the Legislature to focus on both schools and taxes in the upcoming session.
Both were critical of an idea, floated by some Republicans and the influential, pro-small-government Texas Public Policy Foundation, to spend all of the state's surplus on property tax reductions and not create a business tax.
"The surplus should go back to the people from whom it was taken," said the foundation's Michael Quinn Sullivan.
But Scott McCown of the Center for Public Policy Priorities, which supports more spending on programs that help low- and moderate-income Texans, said the state has extra money only because it is not paying for all of its needs. He also criticized state leaders' effort to have a revenue-neutral tax bill — one that raises only as much money as is needed to pay for property tax cuts — instead of raising more money.
"Teachers need a pay raise, and we've got increasingly expensive students to educate with increasing demands for performance," he said.
Something new in Texas companies' tax bills?
Key pieces of the business tax plan offered by the commission:
•1 percent tax on the gross receipts of most businesses.
•One-half percent tax on gross receipts of retailers and wholesalers.
•Businesses could deduct from the tax base either 'compensation costs,' such as benefits or salaries, or the 'costs of goods sold,' such as the cost of machinery needed to make their products.
•Sole proprietorships and general partnerships, which don't receive the same liability protections as other companies, would be exempt.
•Businesses with less than $300,000 in gross yearly receipts would be exempt.
Source: John Sharp
Property tax savings
The Texas Tax Reform Commission is likely to propose a plan that would allow school districts to lower property tax rates for maintenance and operations from $1.50 per $100 of assessed value to $1. Here's what that could mean for taxpayers:
Appraised home value Current school tax bill Potential savings $100,000 $1,275 $425 $250,000 $3,525 $1,175 $500,000 $7,275 $2,425
Calculations assume a $15,000 state homestead exemption. School boards could tax beyond $1, so actual savings could vary.
I'm back now. My primary interest is in lowering taxes and reducing government. It's an uphill battle; I'm fighting the Conservatives and the Liberals (as I have for 50+ years.)
No, I just looked at the one in DeSoto. It's about $4,000,000.00. There are others. Maybe the school boards should just jointly purchase Texas stadium; that might be cheaper.
That's exactly what it is ... and why the heck should I pay an extra dollar per pack of cigarettes?
That thing is a HUGE boondoggle up on 288.
There is already such a tx. It's called the franchise tax.
Well then you didn't get back fast enough! (vbg)
Strange isn't it? Fighting both "sides".
It's apparently whose ox is being gored, eh?
Hey..always wanted to ask you about your screen name. How did you come up with it? Are you a TA chartist?
FRegards,
Get ready to bend over.........they're at it again!
No. Before I retired, I invented some new methods for Monte Carlo computation of integrals (along with some new ideas for error estimates.) Another person had already taken the nickname "Count of Monte Carlo" so I had to invent another moniker.
I grew up in Denton and my parents still live there. I cringe everytime I visit and have to go around the SE loop or other streets like Bell Ave. The city engineers and highway engineers screwed the pooch on planning for the population increase. The roads are basically the same as when I left here in early 80's. But hey they have 2 new high schools and a new stadium and countless parks and feel good pork projects all over town.
"Currently in the Aubrey ISD there is an "administrator" for about every two teachers!"
A number of years ago Denver was trying to get bond issues passed for schools. What killed them and other cities in the metro area was adminstration costs were 40% of the budget. The voters didn't forget that for many years.
Bingo.. but to garner votes, many (on the Right and Left) have made this issue into a 'crisis', selling it that their schools won't be funded after June 1st..
It is even worse than you realize. In all of Texas, the ratio of teacher-to-non-teacher is almost 1-to-1 and only 51 cents of every taxpayer dollar goes to classroom instruction.
The article linked below provides some insight into the waste, fraud, and abuse that are making public education so costly in Texas.
Exactly. The legislature can fund education by cutting other spending, using the surplus, using sales or other taxes, or other ways that I can't enumerate off the top of my head. But until they fix the property tax scheme, the school districts cannot collect this unconstitutional property tax.
Frankly, they can restructure the bureaucracy and make public school teaching a 'right to work' industry to save a hell of a lot of money.
Hey, keep me pinged on this issue if you can, O.K.?
Will do..
If we were to lower the pay, or better yet, rid ourselves of the $250,000+ per year school superintendents, and their oversized administrative fiefdoms, we wouldn't need to worry about another tax increase.
This sounds like nothing more than another scam for new taxes.
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