02.19.10

Understanding the budget and Texas’ structural deficit

Posted in Around The Nation, Bad Government Republicans, Commentary, Education, Taxes, The Budget, The Lege at 12:47 pm by wcnews

Texas has an annual “structural deficit” of about $4.5 billion per year. It was created in 2006 by Gov. Rick Perry and the GOP controlled Texas Legislature. What at the time was billed as a tax-swap of 2006 was nothing of the kind. While it lowered property taxes, the taxes it created to offset that have been way too small to make up the difference - creating the structural deficit. Here’s how it was describes last year during the legislative session, Deficit or awash in cash?

Remember when lawmakers cut school property taxes three years ago? Dropping the maintenance and operation tax rate from $1.50 per $100 valuation costs the state more than $7 billion every year for public education.

And the new business franchise tax and cigarette tax increase generates about $2.5 million more than the old franchise tax - leaving a gap of nearly $5 billion.

“That’s called a structural deficit,” Rep. Scott Hochberg, D-Houston, said. “I don’t think it’s a surprise or any new finding that we have a structural deficit. It was very clear that we passed tax cut bills that had greater costs to them than the replacement tax bills.”

Of course the problems were known with Perry and the Texas GOP’s “tax-swap” scheme when it was passed. From the Center for Public Policy Priorities Policy Page titled Digging a Hole: Special Session Tax and School-Finance Package Creates $10.5 Billion Deficit in 2008-09 Budget

The fiscal notes for the tax and school-finance bills passed during the special session reveal a gap of $10.5 billion between the expected costs of HB 1 and anticipated revenues from HB 3, 4,and 5 in 2008-09. This deficit will place tremendous pressure on the next state budget, which could cause severe budget cutbacks, an increase in the state sales tax or other state taxes, an expansion of gambling as a source of revenue, or all of the above.

[…]

What is the net result?

Combining the estimated costs of HB 1 with the estimated revenue from HB 3, 4, and 5 reveals a potentially disastrous gap in future budgets. As the table below shows, the expected deficit in 2008-09 is $10.48 billion,growing to $11.12 billion in 2010-11. This deficit will place tremendous pressure on the next state budget, which could cause severe budget cutbacks, an increase in the state sales tax or other state taxes, an expansion of gambling as a source of revenue, or all of the above.

Of course Perry and the Texas GOP caught a break last year when it received help from the federal government. The problem was able to be overcome in the last budget cycle by using the federal stimulus money. The point is Perry, Dewhurst, and the rest of the GOP knowingly created a deficit in 2006. Why? Well this has been part of the GOP’s plan since Reagan became president. To create large deficits in order to force cuts to social programs and public education, which have long been the biggest enemy of those on the far right. They don’t believe the government should be involved in giving people a hand up, whether it’s health care for children or an education.

Jason Embry in the AAS on Wednesday put it this way, Budget mess got going with 2006 property tax cuts.

A picture of how the state could look after a budget shortfall hits next year is starting to emerge.

Fewer guards would patrol state prisons. Universities would postpone facility upgrades. Doctors would get less money for seeing Medicaid patients.

[…]

We don’t yet know how deep the cuts will be. What we do know is how we got here, and it’s not for the reason state leaders want you to believe.

The economic downturn isn’t helping the shortfall, but it’s not driving it, either. The driving factor is a decision by Gov. Rick Perry and the Legislature in 2006 to reduce property taxes by $14 billion every two years and raise only about $9 billion to replace that money. In other words, the Legislature committed $5 billion every two years to holding down property taxes instead of spending that money on education, public safety or other priorities.

Then the state’s new business tax brought in drastically less than projected, and that $5 billion gap turned into a nearly $9 billion gap. Lawmakers from both parties did little to address that reality when they met in 2009, and in fact they made the gap a little wider by exempting 40,000 small businesses from the new tax.

And as he goes on to point out, if taxes are not increased there will be sizable cuts in spending. More like the draconian cuts that were made 2003.

Essentially what all of this shows is that much of Texas’ deficit was pre-determined, no matter how the overall economy in Texas and our country overall has been functioning. And while our governor is on TV telling us how many times he “cut” taxes, he won’t say anything about the structural deficit he signed into law in 2006. And Perry’s GOP opponents are quick to chastise him for the 2006 tax swap scheme because it raised taxes on corporations and some business, they don’t mention the fact that it created structural deficit. Probably because if they did they would have to say what the would do to fix it, and they don’t want to debate that.

As another CPPP report points out, “..Texas is a low-tax state, with a structural deficit.” If we want to educate our children it’s going to cost money. And it’s untrue, no matter how many times that guy with the good hair on TV says it, that Texas can provide the essential services to it’s people, do what’s morally right, allow them to live with dignity and have tax cuts too.

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