Texas Monthly Skewers Perry's Tax Scheme

Texas Monthly just released an article about the race for governor and the article shines a light on the gross flaws in Perry's tax scheme offers some insights into the political future of anti-tax fighters like Strayhorn and Hotze and Patrick. Here are some highlights:

[Strayhorn] has kept up steady pressure on Perry over the years—for example, by urging him to fully fund the Children’s Health Insurance Program with money that she would certify was available. He didn’t, of course. I happened to attend a gathering at which she was present while that skirmish was going on, and she was genuinely puzzled by Perry’s unwillingness to do what she thought was the right thing. It was hard for her to grasp, having come of age in the conservative Democrat era, when state government was conservative but not ideological, that someone would put ideology ahead of policy.

Her most recent salvos have been a pledge to repeal Perry’s business tax if she becomes governor and a description of the funding for the impending property tax cut as a “$23 billion hot check” over five years. In the Perry-Strayhorn feud, no opportunity for one to slight the other is to be missed, so when she called a press conference in late May to sign House Bill 1, the bill that cut property taxes and raised teachers’ salaries, I knew it wouldn’t be a routine event. “I am certifying this bill,” she said, “but that does not mean it is good public policy. …The governor is not telling the people of Texas the truth. He is exaggerating, inflating, and misstating what the average homeowner is going to see cut on his or her tax bill by more than three hundred percent.” How much is the tax cut worth in the first year? “Fifty-two dollars,” she said. “You will be able to buy one more Coca-Cola out of a vending machine each week.” ...

The bad news, however, is very bad indeed: For the sake of ideological purity, the Republican leadership would not allow the revenue from the new business tax and other new taxes passed by the Legislature to be spent on the public schools in future years. The Legislature tied up every dollar from the new taxes so they could be used only for future property tax reductions. Tax cuts, it seems clear, have replaced education as the number one priority of state government.

But that isn’t all there is to worry about. In order to achieve the cut, the Legislature must use the new business tax revenue to replace the money school districts will lose by no longer being able to tax at the old, higher rates—which means, believe it or not, that the tax cut is actually a spending program as well. This is no esoteric lesson in public finance. The state budget is subject to a constitutional spending cap; the growth in state spending cannot exceed the rate of economic growth, even when some of that spending is dedicated to replacing money cut elsewhere. It’s too early to know how the numbers will work out, but education advocates are deeply worried that when legislative leaders determine the new spending cap this fall, there will be little extra money for the state to put into public schools.

And here’s something else to worry about. In its determination to reduce property taxes by one third and increase spending on education, the leadership promoted a plan that did not balance. The new taxes do not cover the cost of the tax cuts and the new spending on education—which is why Strayhorn described the funding as a “hot check.” To make up the difference (around $4.5 billion), the Legislature dipped into the $8.2 billion budget surplus, which is largely the result of a healthy economy and high oil and gas prices. Unless the business tax raises a lot more money than it is projected to, legislative leaders will have to do the same thing next year and the year after that. In 2009 and 2010, leading up to the next gubernatorial election, the gap between projected revenue and the cost of HB 1 is $11.6 billion, an unheard-of figure in this state. That check is not just hot; it’s radioactive. So the tax cuts not only have first claim on all the revenue from the new taxes but will almost surely require dipping into future surpluses, leaving less money for education, health care, and other state responsibilities. What happens when the economy suffers an inevitable downturn and there’s a shortfall instead of a surplus? One of two things: a tax increase or budget cuts—and you know which one the Republican leaders will choose. One crisis is solved; another is born.

But even that isn’t all there is to worry about. In the past, school districts always had the ability, without going to the voters, to raise money through tax increases (and by taking advantage of rising property values), although such increases were subject to rollback elections. The new legislation allows districts to raise their tax rates by 4 cents per $100 of property valuation, one time, without an election. After that, any tax increase must be approved by the voters. Whether done intentionally or not, the lasting effect of the great tax cut of 2006 may be to achieve the fiscal conservatives’ dream of starving the public school beast....

Strayhorn is not at all a typical independent candidate. She has been a statewide Republican officeholder, and she had enough of a following in 2002 that she led the entire GOP ticket, finishing some 246,000 votes ahead of the next-best vote getter, a fellow named Rick Perry. Her dustups with the governor are bound to have caused some erosion in her support among Republicans, but she remains much better positioned than a Democrat to win the votes of fiscal conservatives who are irate about the new business tax (notwithstanding the fact that the property tax cuts are projected to exceed the revenue from the new taxes by $1.7 billion in the first year and $2.5 billion the next year, which makes the effect on the state budget an overall tax decrease). In the closing days of the special session, Steven Hotze, a well-known conservative activist from Katy, e-mailed a lengthy screed (“Action Alert for Conservative Republicans”) to his followers, calling upon them to “Urge the Governor to Veto” the new business tax. Among his numerous objections: “School tax reductions will be minimal and temporary.” “There are no taxpayer protections in any of Governor Perry’s bills.” “Governor Perry made no attempt to pass a bill imposing caps on property appraisal values.” “State government has an $8.2 billion surplus which could be used to buy down the property tax rates making the tax increase necessary.” Poor Perry. He finally exercises leadership, backs a bill that will raise enough money for the property tax cuts Republican leaders have been promising for years, patches a school finance system that the Texas Supreme Court had declared unconstitutional, and even agrees to spend more money on education (math and science programs and a $2,000 teacher pay raise), only to have his base turn on him.

The Strayhorn campaign’s expectation is that she and Bell will remain fairly close together until she starts running TV ads. Then Bell will drop off the radar screen and Democrats will care so much about beating Perry that they will forsake their party ... It has been obvious for at least two years that she was going to run against Perry, and she has attacked him relentlessly during that time. But her weapon has been a shotgun; she fires scattershot blasts at the governor’s toll road program, his “pork-barrel spending” for economic development, his new business tax, and the $40 billion growth of the state budget during his watch. ...

The split between the traditional conservatives and the activists is likely to get worse following the primary victory in a Houston state Senate race by radio talk show host Dan Patrick, an outspoken fiscal conservative who could play the role of enforcer on the Senate floor. ... Patrick, who has bought a Dallas radio station to carry his conservative message into North and East Texas, has to be considered as a possible 2010 candidate on Dewhurst’s right.

South Texas Newspaper Reports on Perry's Tax Lie

The Brownsville Herald reports that inflating property tax appraisals (which Perry failed to cap) will offset the alleged property tax reduction which Perry (falsely) promised so that taxpayers will not see much relief:

BY AARON NELSEN
The Brownsville Herald

Roberto and Lari Ruiz assumed they would see some tax relief on their two Brownsville properties after the Legislature over-hauled the state’s school finance system last month.

However, because of double digit increases on the appraised value of their homes, the couple will not see the promised property tax relief lauded by the Legislature. They will have to pay more to the school district than they did last year.

“I don’t understand how individual homeowners can be expected to shoulder this,” Lari Ruiz said. “My biggest concern is that we won’t be able to live here as we get closer to retirement.”

The Brownsville couple isn’t alone. Thousands of homeowners in Cameron County have seen their appraised property tax values increase dramatically this year.

Average property values for homes in the Brownsville Independent School District have gone up 26.1 percent since last year.

Similar increases can be found in school taxing districts throughout the county.

WFAA Reports on the Phony Numbers in Perry's Ad

Governor Perry is saying in new TV ads that school taxes for the average homeowner will be going down $2,000 because of the school finance law that he just signed. However, some are disputing that claim, as WFAA's Brad Watson reports.

CHECK OUT THE VIDEO HERE

STRAYHORN WILL REPEAL PERRY TAX HIKE

Carole Keeton Strayhorn has announced that she will, as Governor, repeal HB 3 -- the largest tax increase in Texas history that Governor Rick Perry today signed into law:

“Gov. Perry said he was signing the largest tax increase in Texas history with ‘passion and joy’,” Strayhorn said. “I will repeal the tax hike with passion and common-sense fiscal responsibility.”

“This law leaves Texans with a $23 billion hot check,” she said. “It is bad public policy and I will blast it off the books after I am elected governor.”

The law increases business taxes 200 percent, forces 200,000 businesses that are currently not paying taxes to pay or file taxes, and does not pay for Perry’s property tax cuts.

“We have the money to address our needs, but we must have the will to make the smart choices for the long term,” she said. “We can really fix our school finance system, really cut property taxes, reign in government spending, crack down on criminals who abuse our children and repeal the largest tax increase in Texas history.”

“It should be repealed because we do not get much for this massive tax increase. Perry’s plan provides a paltry pay increase for teachers, provides a pittance of property tax relief that will evaporate almost immediately, punts our problems just past the November election and will postpone only temporarily additional court action,” she said.
In addition to there being an $8.2 billion surplus, Strayhorn said she will work with lawmakers to implement her long term Strayhorn Solutions — an additional $8 billion in cost savings and new economic revenue generators including the cost-saving Texas Performance Reviews and Texas School Performance Reviews, implement video lottery terminals at racetracks, and eliminating the Governor’s taxpayer-funded corporate welfare slush funds and his Washington, D.C., lobbying contract.

“We need long term solutions, not a temporary fix like the Governor has signed into law today,” she said. “I will bring those long term solutions when I am Governor.”

She said in addition to including an unconstitutional income tax on partnerships and unincorporated associations, the plan taxes the very service providers that are driving the economy. “Among others, this group includes dry cleaners, lawn services, barbers, beauty shops, janitorial services and doctors,” she said.

Perry's TV Advertisement Is False

Perry's TV ad bragging about his so-called "tax cut" is generating the wrong kind of buzz on the internet and the mainstream press (specifically, it's creating buzz that Perry's ad is chock full of lies).

FIRST LIE: Perry's fictitious ad claims that the average Texas homeowner will receive a two thousand dollar property "tax cut" over the next three years.

TRUTH: Perry falsely inflates his so-called "tax cut" number by incorrectly starting with the average home sales price, but taxes are based on the much lower average home appraisal value, so Perry should base his "tax cut" spin on the appraised value. This error alone inflates Perry's number by about 50% over the correct starting point where he should begin his calculation from because the average appraised value of Texas homes is around $118,000 as compared to the 50% higher average sales price of $180,500 which Perry used. Perry then further inflates his so-called "tax cut" by pretending that there is a cap on home appraisals, which is an idea many proposed but Perry and his tax-hiking administration refused to consider. Appraisals rose 7% last year, and there is no reason to doubt they will rise 7% this year and next, and this rise will eat into the so-called "tax cut." Moreover, even without voter approval, school boards are granted the authority to increase the property tax rate by $.04 per $100 of appraised value (they can raise it even higher with voter approval). Every bit of our past experience tells us the school boards will in fact raise the tax rate by at least $.04 per $100. This eventuality would have been avoided if Perry had passed a cap on appraisal increases and eliminated the school board's authority to raise the property tax rate, but Perry refused to consider such measures. When you figure in this inevitable $.04 per $100 increase plus rising home appraisals, the amount of property taxes which are being replaced by the new small business income tax is less than a third (maybe less than a quarter) of Perry's "pie in the sky" number.


SECOND LIE: Perry's fictitious ad claims that he closed corporate tax loopholes.

TRUTH: To the contrary, Perry's switch from property taxes to small business income taxes creates more loopholes for Perry's biggest corporate sponsors at the expense of Texas' small business job creators. Even the Legislative Budget Board's analysis confirms that big property-rich business will get a huge tax windfall from Perry's "loophole closing" scheme. The mining industry gets almost $300 million in new tax loopholes, utilities and phone companies get over $100 million in new tax loopholes, big sales corporations get almost $150 million in new tax loopholes, and the insurance, finance, and real estate industries get over $800 in new tax loopholes. These new tax breaks for big businesses (totaling almost one and a half billion dollars) are mainly paid for by Perry's new small business income tax (except that hospitals got a big new tax loophole in that deal so these new tax loopholes are being born by small non-medical businesses).


THIRD LIE: Perry's fictitious ad claims that he's protecting Texas' job climate which Perry claims is the best in the nation.

TRUTH: The truth according to the U.S. Department of Labor's Bureau of Labor Statistics is that the Texas job climate is tied for 38th from best and only 9 states have a worse job climate.

Perry Tax Scheme Alienates GOP Faithful

Houston Chronicle reporter R.G. Ratcliffe says "Perry's political clout facing convention test - The governor's tax package causes grumbles among the GOP faithful".

Here's an excerpt:

The Texas Republican convention next weekend will be a major test of whether Gov. Rick Perry has alienated the GOP base with a property tax cut package that was paid for with a major business tax increase....

Several Houston delegates to the state GOP convention are pushing for a party platform plank denouncing the new tax. At the very least, they say they hope to send Perry a message of Republican disgruntlement.

This anger might ... create a disillusionment that causes some voters to stay home.

That could spell disaster for a governor seeking re-election in a race that likely will be decided by less than a majority of the voters.

"They'll either skip the governor's race, or they'll end up voting for the little grandma (independent candidate Carole Keeton Strayhorn) to let the governor know that, even if you win, we do not approve of what you are doing," said Langston Gillum, a Houston delegate on the platform committee.

...

Houston grass-roots activist Steven Hotze and businessman Norman Adams pushed a resolution through the Harris County Republican Executive Committee denouncing the new business tax, and they are asking the state convention to adopt it as part of the party platform.

"He (Perry) has jeopardized his position, and his status has fallen with grass-roots conservatives across the state, particularly here in Houston," said Hotze.

...

Parro acknowledged, however, that there is a national "unrest" among the Republican grass roots that could translate into poor voter turnout in November.

"The sense that Republicans are going to suffer in November is quite strong all across the nation," Parro said, citing immigration issues as the biggest concern for Republican voters.

Kirk Overbey of Austin, chairman of the platform committee, said he believes there is "angst" among Republicans across Texas about the tax package.

Past opposition

"There is a lot of concern about the whole tax package put together by a Republican Legislature and signed by a Republican governor," Overbey said.

...

Love Letter from Carole to Rick re: The Perry Tax Scheme

May 15, 2006

The Honorable Rick Perry
Governor, State of Texas
Capitol Building, Room 2S.1
Austin, Texas 78701

Dear Governor Perry:

The Legislature is concluding its work on your tax plan. Your plan is fiscally irresponsible -- it includes an unconstitutional income tax on partnerships and unincorporated associations, the largest tax increase in Texas history and leaves the largest hot check in Texas history. What you should do is show true leadership and veto this legislation.

As the state's chief fiscal officer, it is my responsibility to spell out exactly what the Perry Tax Plan means to our state's fiscal integrity. As you have known since it was made public, your plan simply does not pay for itself. As of this moment, this legislation is a staggering $23 billion short of the funds needed to pay for the promised property tax cuts over the next five years.

In 2007, your plan is $3.4 billion short; in 2008 it is $4.3 billion short; in 2009 it is $5.4 billion short; in 2010 it is $4.9 billion short; and in 2011 it is $5 billion short. These are conservative estimates.

At best, your plan is a prelude to another huge tax bill in the next regular session, one that will not only be heaped on Texas businesses but will fall heavily on the same taxpayers you claim to be helping now. At worst, it will relegate Texans to Draconian cuts in critical areas like education and health care for at least a generation. This is not a victory for taxpayers. It is a sham, and Texans will see it for what it is.

There is no economic miracle that will close the gap your plan creates. Even if every single dollar of the current $8.2 billion surplus was poured into the plan, it would not cover the plan's costs for more than two years, 2007 and 2008. The gap is going to continue to grow, year by year. There are only two ways to close a chasm of that magnitude -- future tax increases that you are hiding from Texans now or massive cuts in essential state services -- like public education -- already devastated by your past fiscal indifference.

I have outlined $7.7 billion in long-term "Strayhorn Solutions" to finance needed programs, such as a significant teacher pay raise, real property tax cuts and fully restoring the Children's Health Insurance Program. Those solutions include reinstating e-Texas Performance Reviews and the Texas School Performance Reviews to the Texas Comptroller's office, implementing video lottery terminals, closing corporate loopholes in the franchise tax, eliminating the taxpayer-funded Texas Enterprise Fund and Emerging Technology Fund, and a $1-a-pack increase in the cigarette tax tied to vital health-related programs.

Texans deserve relief from high property taxes, but they do not need it at the expense of future tax hikes and more cuts in public education. Educators are justifiably skeptical of this program because they know that when the state controls the purse strings, rather than locally elected school boards, the result will be devastating to our schools.

The property tax relief contained in the bill, if it can be financed past 2008, will be quickly eroded by rising property values, and increases in local tax rates forced on local school districts struggling to keep up with rising costs. In as little as five years, the state could be right back in court.

Finally, your plan represents the largest tax bill in Texas history, includes an unconstitutional income tax, represents a 200 percent tax increase on Texas businesses at a time when the state has taken an $8.2 billion surplus out of the pockets of hardworking Texans, and does not pay for itself as required by the spirit of our Texas Constitution's "pay-as-you-go, no-deficit-spending" provision. That is unconscionable.

Governor, we should be working to improve state services for Texans and to reduce the burden of government on businesses and individuals. This plan creates a rolling mess that will take 20 years for future leaders of the state to untangle. Texans will recognize this plan for what it is -- a short-term, smoke-and-mirrors patch at best.

I urge you to show true leadership and veto this legislation. Texas needs a school finance plan that provides long-term, pay-as-you-go solutions for education.

Sincerely,

Carole Keeton Strayhorn,
Texas Comptroller

c: The Honorable David Dewhurst, Lieutenant Governor
The Honorable Thomas R. Craddick, Speaker of the House
Members of the 79th Legislature