02.04.10

House Ways and Means Committee to look at “Certain Sales Tax Exemptions & Exclusions”

Posted in Around The State, Commentary, Taxes, The Budget, The Economy, The Lege at 2:09 pm by wcnews

House Committee looking to expand sales taxes.

State sales tax receipts in Texas has been slumping for quite some time, Texas sales tax collections are $1 billion behind, and they are the major source of income for the state.

But the decline is dramatic. A year ago, Combs forecast essentially flat sales taxes receipts in the budget year that started Sept. 1; instead, they’ve decreased by 12.9 percent in the first four months.

To meet Combs’ biennial revenue estimates, Texas needs to collect nearly $44 billion from its revenue workhorse, the 6.25-percent state sales tax. It produces 57 percent of state tax revenue and about a quarter of overall funds, including federal money.

But just one-sixth of the way into the new two-year budget, it has collected only $6.3 billion. Last year, collections from September through December were nearly $7.3 billion.

And the estimates of how big the deficit will be in for the next budget cycle is looking grim. There are “educated guesses” right now of a deficit somewhere between $10 - 20 billion dollars.

The last time Texas lawmakers had to cut the state budget was 2003, when they faced a $9.9 billion shortfall. Next year’s deficit very well could be bigger. Some guesses that have been posed:

$10.8 billion: John O’Brien, director, Legislative Budget Board

$15 billion: House Appropriations Committee Chairman Jim Pitts, R-Waxahachie

$17 billion: Senate Finance Committee member Tommy Williams, R-The Woodlands

$19 billion to $20 billion: Sens. Royce West, D-Dallas, and Eliot Shapleigh, D-El Paso

Which brings us to the House Ways and Means Committee. The committee has a Democratic Chair, but an 8 - 3 GOP majority. Here’s what an “An Outside Observer Analysis” [.pdf] said last year when the committees were announced about Ways and Means:

Way & Means, which goes to a Democratic chair, has an 8-3 Republican super-majority. While Way & Means will likely pass no major tax bills this session, if something is passed, a Democratic chair simply will give Republicans cover for any tax increase. In addition, the large Republican majority on the committee assures that whatever comes out will be a Republican plan with a Democratic chair merely acting as a figurehead.

It’s also key to keep in mind that three of those GOP members of the committee are also on the board of a “right wing” think tank. All of this is to setup the fact that the Ways and Means Committee will be having a hearing next week where they will be discussing “Certain Sales Tax Exemptions & Exclusions”. A few items named that are currently excluded are bottled water, basic internet service, and coin operated services. The committee is only keeping with #2 on GOP Speaker Joe Straus’ “Interim Charges” [.pdf] for the committee.

Examine the state’s major tax exemptions to determine how the current costs and benefits compare with the original legislative objectives. Make recommendations for adjustments as needed.

Also at the hearing there will be invited testimony from Michael Mazerov, of Center on Budget and Policy Priorities, on “Sales Taxation of Service”. Here’s an excerpt from an excerpt from a study he did on the subject, Expanding Sales Taxation of Services: Options and Issues.

Most states could improve their sales taxes and their tax systems in general with some expansion of the tax base to include services. Levying sales taxes on services makes state tax systems fairer, more stable, more economically neutral, and easier to administer. Moreover, because state sales taxes are a major source of funding for schools, universities, health care, public safety, and other functions of state and local government, adding services to state sales tax bases can help states maintain their support for those functions, for instance during an economic downturn when state revenues are declining. Broadening the sales tax base can also avert other, less sound tax increases that otherwise might be enacted when a state needs new revenue. There are significant economic, administrative, and legal issues that must be addressed in expanding the sales taxation of services. The barriers are not insurmountable, however, and the benefits from a broader sales tax base outweigh the challenges. [Emphasis added].

From reading the paper it’s clear that there’s a right way and a wrong way to tax services, and unlikely it would be done the “right way” with the Texas GOP leading the way. And all of those areas highlighted above will likely be front and center on the chopping block in 2011. It’s not clear whether the drive for this is to make up for the reduced sales tax receipts, or if it is some sort of right wing plan to do a tax swap. We won’t likely know until later, but it would be comical if they proposed raising these taxes to lower, or eliminate, property taxes with such large projected budget deficit next year. But we shouldn’t hold our breath either.

As we’ve heard in the GOP primary for governor one candidate has talked of getting rid of the property tax for a broader sales tax. More than likely this is just the Texas GOP trying to get a little political cover for an impending “broadening” - or raising as they would likely call it if Democrats were in charge - of the states sales tax next session to make up some of the money for the coming budget shortfall.

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