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Editor’s note: Around a round table at Scholz’s Beer Garten on a chilly day in March, the Observer convened an informal symposium on the question of tax reform for Texas. How might the state’s antiquated tax structure be changed to adequately fund state government? How could taxes be levied more fairly? Would income taxes pro/note tax equity? In short, what would progressive tax reform look like in Texas? To grapple with these questions, which are currently giving the legislature a headache, we asked five of our favorite tax swamis to gather round and put their heads together. What follows is an edited transcript of the hour’s discussion. Participants were: Norm Glickman, an economist who is Hogg Professor of Urban Policy at the LBJ School of Public Affairs in Austin; Jared Hazleton, director of the Texas Research League, a business-supported thinktank \(Hazleton was unable to sit in on the full session because of a commitment to Moore, an associate deputy comptroller who works closely with Comptroller Bob Bullock on tax policy; Fred Schmidt, a retired member of the UCLA Graduate School of Management and a longtime Texas liberal; and Dee Simpson, lobbyist for the American Federation of State, County and Municipal EmployeeS, which is making tax equity a top priority on their legislative agenda. They met with Dave Denison of the Observer. As the conference began, nothing seemed inevitable but beer and taxes. Simpson: Jared, what are y’all gonna let pass? Hazleton: Well, you’ve got to start out by saying that taxes are a residual decision the real decision is on spending. Nobody passes taxes until they pass spending. Glickman: Well, looking at it from another point of view, you need to look at both sides. Hazleton: But basically the taxes are derivative. So I think on the spending side, what Texas is beginning to figure out is that it wants to spend a lot of money . .. a lot more money than it has been spending and I see it in every area and I think it’s well supported. People who are supporting higher education spending are largely in the business community; people who are supporting public school spending are people who serve on school boards. Simpson: It seems obvious to me right now that we’re not in a posture to spend as much as we did last year or .. . Hazleton: Well, I don’t believe that. Everywhere I look I see tremendous interest group pressure for spending and largely led by prominent people. H. Ross Perot says he’s going to hire lobbyists to support public school spending. I talked to a bunch of equipment dealers in Dallas today. They tell me we can’t cut any type of public works spending, highways or water or any of that stuff. The judges tell us we can’t cut prisons or mental health. If you don’t cut any of that stuff and in essence I think that’s basically where we’re coming from then you need more tax revenue. And the question is only how do you get that out of an economy that is different than it used to be. Glickman: I agree with Jared in the sense that our baseline is a level somewhere around Guam in terms of a lot of spending categories. The economy is just not the way it used to be. It ain’t gonna be back to the good ol’ days, ever. And there’s a real push going on I think it’s largely in the business community for investment in a variety of things that will make Texas business more competitive, to increase the number of jobs and increase profits. And to raise money for these public services, which I believe to be needed, is the first order of business. It may be residualist in the sense that Jared says; I think that’s right. But we need to raise these funds to make the investments we need to make so we’re not writing hot checks come August and we’re also not raising money in the way of parimutuel betting on chicken races or something like that; we’ve got to do it in a decent way. And the current proposals that I hear out there seem to be leaving us short by a couple of billion dollars just on a nogrowth budget. The six billion dollars that the comptroller’s office says we need over this biennium and the current year . . . we’re talking about raising four or four and a half in that range and the question is how are we going to get the rest of the money that we need? I also think that that six billion dollars is an unrealistically low figure if we want to make the investments we need to make. Simpson: I would certainly agree with Jared in the sense that people want more spending and certainly [Lieutenant] Governor Hobby has been talking about a public works program to do some of that physical infrastructure work. Our concern is that there’s been a lot of focus on state government and it’s been a real problem focusing somewhat on local government as well, that it is tied to the state structure. Local government is tied to a sales tax that is very narrow and they’re tied to property taxes which have been rising very quickly in this state. Most of the major cities in this state are running in the red right now, they’re laying people off, they are cutting back on services and we’re seeing this all over the state .. . Glickman: And they’re increasing fees. Simpson: . . . and they’re increasing fees, right. And they, like the state, have gone through a period of cutting and layoff and now they’re looking right at the same thing the state is, but their futures . . . they can’t make their own decisions. Their future is tied to what decisions are made here. And they deliver a good share of the services and then . . . the federal aid is stopping for them. Moore: And at the same time that the state fiscal crisis developed and for the same reasons, the bottom dropped out of the world oil market and wrought havoc to the local tax bases. Some local school districts had 95 percent of their tax base tied up in oil and gas, which is gone now and they don’t have much alternative. What we’ve tried to do at the comptroller’s office in coming up with a plan to deal with the situation, is to try to broaden that base which; in addition to raising state revenues, would give more revenues to the cities and to the MTA’s [Municipal Transit Authorities] and at the same time try to bring the tax structure in line. You know, when you ask yourself, “What is an equitable tax structure? What am I after here?” the best answer that we could come up with was, “Let’s go after a tax structure that taxes sectors of the economy relative to their share of the total Texas business pie” and that’s the The Scholz Garten Symposium Visions of Tax Reform 10 MARCH 20, 1987