Day of Reckoning

This editorial originally ran in the Dallas Morning News.

Welcome, Rick Perry, David Dewhurst and Tom Craddick. Starting today, Texas’ government belongs to you and your party. Republicans control the Governor’s Mansion, the Senate and the House for the first time since the 19th century.

Along with such precedent, sirs, comes responsibility. Complete responsibility. You and no one else are accountable for solving many of the problems facing Texans from Brownsville and Houston to Plano and Fort Davis – and, yes, even Crawford.

It won’t be easy – especially with Texas staring at a two-year budget deficit that, according to state Comptroller Carole Keeton Strayhorn’s announcement yesterday, will be close to $10 billion.

GOP leaders say they can fix the deficit without a tax hike. They’re wrong. They should act sensibly now to avoid a larger tax bite later.

Sure, spending cuts are helpful. Some are necessary. A 2 percent to 3 percent reduction in the growth of most state budgets would be a good place to start.

But let’s get real. The state could wipe out every single penny of the nearly $8 billion it spends every two years to keep criminals off the street, patrol the highways and protect children from abusers and still not balance the budget. Or legislators could wipe out the $6.9 billion it spends each year to build roads and promote the Texas economy and still not erase the deficit.

Which gets us back to taxes. GOP legislative leaders pride themselves on opposing a state income tax. Fine. If they don’t want to get pushed up against that wall, they better get behind some other, less draconian revenue plans. We have three suggestions.

Expand the state sales tax to include more services.

Texas taxes goods more than services. A can of shaving cream, you pay taxes. A new car, you pay taxes. Accountants’ services, you don’t pay taxes. Car washes, no taxes

The state’s sales tax applies to an estimated 40 percent of the items sold in Texas, according to the Center for Public Policy Priorities. But the sales tax hits only about 30 percent of services. That’s not fair. And it adds pressure to hike the rate on already-taxed items, rather than keeping the rate steady and expanding it more broadly across sectors of the economy.

Extending the tax to all services except medical and dental would raise about $7.5 billion over two years. Lawmakers shouldn’t go that far. For example, they should exempt food as a necessity as well as certain services that directly generate large numbers of jobs or otherwise have a big impact on the economy. But broadening the tax in significant fashion is sound economic policy.

Broaden the state’s leading business tax.

The state’s franchise tax also hits many service-oriented businesses. Lawyers. Doctors. High-tech firms. They take advantage of loopholes in the state’s leading business tax. The state should correct that. Companies with heavy plant and equipment investment – in other words, firms rooted in the old Texas economy – shouldn’t have to carry the bulk of the state’s business taxes while the most rapidly growing sectors of the economy escape.

Again, broadening the base and keeping the rate relatively low makes economic sense. It also would raise several hundred million dollars.

Close the franchise-tax loophole.

Some companies, including the Belo Corp. that owns this newspaper, don’t pay the same amount of the franchise tax as others because they have structured their businesses to qualify for reduced taxes. Legislators should change that exception. Many Texas companies have exercised the exception because it makes business sense. But now is the time to close this loophole and require companies located here to pay comparable taxes here. Even tax-averse Gov. Perry acknowledges this point.

He’s also eyeing the $285 million it would raise.

Let’s be clear: Targeted budget cuts are important, overdue and likely to save millions of dollars.

But Texas is a growing state with more children to educate every year, more communities to police and more highways to build. We’re talking billions, not millions, needed to close the budget shortfall.

It’s time for lawmakers to get real – particularly the three Republicans at the helm. This proud state has too much at stake to ignore reality.

FOR MORE ABOUT BUDGET

Go to www.cppp.org and click on Texas Revenue Primer or Texas Budget and Tax Primer. Or go to the Texas comptroller’s office at www.window.state.tx.us and click on Texas Taxes or Texas Finances. Both sites provide good data on the state’s budget and revenue.

Online at: http://www.dallasnews.com/opinion/editorials/stories/011403dneditaxes.4ba87.html

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