The House and Senate Get Ready to Brawl Over Tax Cuts
Who would have thought the biggest fight of the 84th Legislature would be over cutting taxes, an act normally beloved in the halls of the Capitol? Most of the headlines we’ve seen this session have been over guns, gay rights, the border and vouchers, but as the session comes to a close over the next month and a half, it seems likely that the headlining bout will be over two competing tax cut plans. It’s a showdown that is hugely consequential for the future of the state. And the plans offered by the two chambers seem, for now, irreconcilable.
There was some strangeness around the matter of tax cuts early on, as Lt. Gov. Dan Patrick and Gov. Greg Abbott seemed to compete over who would call for the biggest, boldest proposal. Dan Patrick asked for $4 billion initially, so Abbott called for $4.4 billion. The Senate answered with a proposal for $4.6 billion in cuts. All the while, the House budget writers kept mum, leaving room in their early budget proposals for tax cuts, but not producing a detailed plan at first.
The Senate proposal is strangely nonsensical. It chops the franchise tax, which is acceptable to almost all parties at the Lege, even Democrats. But the rest of Patrick’s proposal seems less than ideal. He aims to cut Texans’ property taxes. But the state doesn’t administer property taxes; local jurisdictions do. Patrick’s proposals would reimburse local jurisdictions to some degree, but other Senate proposals would greatly restrict the ability of cities and counties to take in revenue.
So Patrick would get to take credit for cutting taxes now, even though local governments around Texas, which are already swimming in debt and face uncertain fiscal futures, would pay the price. There’s also the fact that to make the math work on his proposal, Patrick wants to allow legislators to circumvent the constitutionally enshrined spending cap to pay for tax cuts, now and in the future…. while also tightening the spending cap to ensure that the state has less money to spend. If that doesn’t make sense to you, that’s because it doesn’t make sense.
The House took its time to respond. But last Wednesday, a top lieutenant of House Speaker Joe Straus, state Rep. Dennis Bonnen (R-Angleton), released the House tax plan. The lower chamber would cut franchise taxes too, but property tax relief is nowhere to be found. Instead, the House would lower the state sales tax rate from 6.25 percent to 5.95 percent.
Sales taxes are paid by everyone, not just property owners. And cutting the state sales tax doesn’t hurt local jurisdictions in the same way. What’s more, Bonnen and the House gave themselves a trump card—their tax plan totals $4.87 billion, allowing them to cutely claim that Patrick wants “smaller tax cuts.” Bonnen’s plan will have public testimony on Tuesday morning at the House Committee on Ways and Means meeting.
Neither tax cut package will mean much to the average Texan—certainly not compared to the size of the hole it blows in the state budget. The property tax cuts might mean about $200 a year for the average homeowner. But if you don’t pay property taxes—if you live in an apartment, for example—you get nothing.
Bonnen, meanwhile, boasts that the sales tax cut could mean $172 a year for “a family of four.” If that savings comes only from the reduced sales tax the family pays at stores, it assumes that the family of four is spending $57,000 on taxed goods every year, which is just a little bit less than the median total income of a four-person family in Texas.
To be fair, Bonnen’s analysis probably also assumes the family will save money from cheaper goods and services as a result of the business-side implications of the tax. Big businesses are the main beneficiaries of a sales tax cut, though its advocates would say the savings will get passed on to you.
To put it a different way, under the House plan, you’ll save 30 cents with each purchase of $100 of taxable goods. For every $1,000 of stuff you buy, then, you’ll be able to afford three hours of parking in downtown Austin. Oh happy day!
But the efficacy of these plans is beside the point—the fight has become a measuring contest of the virility of each chamber. Patrick slammed Bonnen’s plan, which he said in an unusually cutting statement was “out of step with Texans, my office, the Senate and the Governor.” He noted that Abbott had called for property tax relief in his State of the State speech and implied Abbott was on his side in this dispute, continuing his habit of putting words in the governor’s mouth, which is surely appreciated by Abbott’s team. (On Thursday, Abbott spoke briefly about tax cuts in Houston but said nothing specific on the issue of property vs. sales tax cuts.)
During a TV interview, Bonnen punched back. “It’s not my role to say what the governor thinks about tax cuts. Respectfully, it’s not the lieutenant governor’s either,” he said. Why was Patrick so focused on property taxes? “I think he’s just concerned about campaign promises he’s made,” said Bonnen.
How does this get resolved? Big business is steadfastly behind the House plan, while Patrick’s base loathes property taxes. Patrick and state Sen. Jane Nelson (R-Flower Mound), who runs the Senate Finance Committee, show no sign of backing down. “I have never had a constituent tell me they want a cut in sales tax—ever,” Nelson told reporters. “I’ve had lots of constituents come and complain about property taxes.”
Patrick can’t retreat completely from his property tax plan—he’s too far in. And, moreover, he needs a big and flashy signature accomplishment for his first session. He came in with too much bluster, and with too many promises made to the people who elected him, to leave the session with a few smaller education bills, and some money for border security wrestled from the House. This was a man who, in his inaugural address, promised to “secure the border in this session” and invoked the memory of Martin Luther King, Jr. to sell the changes he wants to make to state government. One imagines him staring intently at a full bathtub, attempting to part the waters with his mind.
Whatever his future plans are, he needs a trophy come June. And at this point, the best candidate for that trophy is a tax plan that doesn’t do much for most Texans, blows a giant hole in the budget of state and local governments, and requires trick budget math to pull off. Go figure, right? And the House is doubling down in its efforts to keep it from him with bad policy of its own.