Ten Ways To Fix Texas
Illustrations by Jonathan Carlson are not available online.
BY NOW THERE CAN’T BE MANY SOULS IN TEXAS WHO REMAIN unaware of the Legislature’s long record of failing to lower school property taxes. At least with lawmakers back at the Capitol to address the problem, there is cause for optimism. Elsewhere in state government, however, disarray prevails: too many failing students in our public schools; soaring health care costs that threaten to undermine the solvency of the state; nursing homes that may have to close because the state underfunds them so badly; a tax system that fails to reflect the modern Texas economy; a franchise tax for businesses that is so riddled with loopholes and exceptions that at least five out of six firms do not pay it; a looming water crisis that is as sure to come as the next drought; a demographic tsunami of lower-income students who will arrive at our colleges and universities around 2015, where they will discover that neither the quality of higher education nor the quantity of financial aid is adequate to the task of educating the state’s future workforce. These issues and a handful of others represent the permanent agenda of the state. This agenda exists whether the state’s leaders choose to address it or not. It can be ignored, but it can’t be wished away.
I have worked in the Legislature or written about it for almost four decades, and I can vouch that any state leader during that time would have no trouble recognizing the issues that face Texas today. Problems are intractable and solutions elusive, and for many lawmakers, the temptation is irresistible to spurn the permanent agenda in favor of a political agenda. So it was this past session, when legislators gave up on improving the education and tax systems and instead flung themselves into battles over banning gay marriage (for the second time) and whether dirty dancing by cheerleaders was a threat to America.
Enough already. The truth is that most of these issues have been studied to death. Legislators know what they need to do. They just don’t want to do it. They want good schools, reliable water supplies, magnificent roads—but they don’t want to make the voters pay for them. So, just this once, let’s put aside the conflict of the moment and approach the permanent agenda free of political constraints. Here are ten things we can do to make Texas a better place.
01 — INSTITUTE A PERSONAL INCOME TAX
Tax experts say that the tax system, like a kitchen stool, requires three legs to stand without collapsing. The legs are sales taxes, property taxes, and compensation taxes. In Texas today, the stool is near collapse—because it’s missing a leg. There’s a reason why property taxes in Texas are so high that the Legislature is under pressure to reduce them. It’s because we have no income tax. There’s a reason why Texas has one of the highest sales tax rates in the country. It’s because we have no income tax. The idea that the absence of an income tax makes Texas better able to attract business to the state is an illusion. High property taxes are a deterrent to home ownership. They are a deterrent to high-wage businesses that might want to move to the state or expand here.
Texas has an outmoded method of taxing business that is based on an old-fashioned industrial economy rather than the contemporary service economy. The state taxes corporations and excludes partnerships. Businesses from Dell Computer to the Fort Worth Star-Telegram have figured out how to reorganize themselves in a way that allows them to avoid paying the business franchise tax. The professional-services sector of the economy—doctors, lawyers, architects, accountants, engineers, consultants, insurance and real estate agents—finds it even easier to get around the franchise tax. A personal income tax, therefore, doubles as a business tax. It is the only way to tax business partnerships and produce enough money for the state to fund its schools, meet federal mandates in health care, and keep violent criminals locked up.
In its contortions to avoid the “i” word, the Legislature has considered a payroll tax on businesses that are not corporations. This is a terrible idea, for three reasons: First, it penalizes companies for creating jobs. Second, it hits some businesses harder than others, namely low-profit-margin, labor-intensive operations such as call centers and Wal-Mart. Third, it lets businesses without employees (for example, investment partnerships) off the hook entirely. Why shouldn’t the Bass brothers pay a state business tax?
The Texas Constitution decrees that two thirds of the revenue raised by a state income tax must go toward the reduction of school property tax rates. That sounds pretty good right now. So does this: The remaining third must go to education. The constitution also requires approval of an income tax by the voters. If the public really is serious about wanting property tax cuts, let’s give them a chance to put their mouth where their money is.
02 — STOP THE TOLL ROAD MENACE
Toll roads have their place: Oklahoma. Yuk, yuk. Okay, I’ll admit to using the Dallas North Tollway now and then and bypassing Houston traffic on the Sam Houston Tollway. I’ll even concede that toll roads make sense to relieve congested routes between cities. But turning planned freeways—that’s freeways—into toll roads in urban areas and holding commuters hostage is downright un-American and un-Texan. And that’s exactly what we are in the process of doing. There is a relatively easy way to prevent this kind of highway robbery: Raise the gasoline tax. Five years ago, Texas’s gasoline tax was 20 cents per gallon—much higher than California’s (18 cents), New York’s (8 cents), and Florida’s (13.3 cents). By 2004, New York’s gasoline tax stood at 39.2 cents, California’s at 35.9 cents, and Florida’s at 30.6 cents—while Texas’s remained at 20 cents. A 10-cent increase in the Texas tax would yield $1.41 billion—a little more than $1 billion for highways and the rest reserved for public schools. That money could be used to pay the interest on bonds for freeways. Let’s not stop there. The Legislature should allow voters in the state’s three most populated regions—Houston, Dallas-Fort Worth, and Austin-San Antonio—to authorize a local gasoline tax of 5 cents a gallon for new freeways within each region. Don’t think of this as a tax increase. Think of it as a toll road decrease.
03 — RESCUE THE NURSING HOMES
Federal law requires Texas to provide funding for Medicaid patients in nursing homes. The homes sued the state, claiming that the payments were inadequate, and won. The Legislature doesn’t have to come up with a bunch of money to bail out the homes. It just has to come up with an even scarcer commodity: political will. A bed tax on nursing home patients of $7 a day would bring $3 back to Texas in federal matching funds for every $1 it generates. This would solve the problem for the 85 to 90 percent of the nursing homes that take Medicaid patients. The rest would not share in the federal largesse; however, their patients are more able to pay the tax, and some also have long-term-care insurance. But the fear of being accused of passing a “granny tax” is too much for politicos to overcome.
04 — BOOST TEACHERS’ SALARIES
The most difficult public policy issue the Legislature faces is how to put more money into public schools in a way that actually produces results in the classroom. The problem is that more than 80 percent of the proposed $37 billion public education budget goes to pay salaries and benefits. Incremental salary increases aren’t likely to make much of a difference. But suppose the salary increase was more than incremental? Suppose we raised the starting salary for teachers from $31,874 (in 2002–03) to $50,000. Wouldn’t that be enough to attract a lot of highly talented people who currently avoid going into teaching? We should provide similar raises for current teachers as well. Critics will say that we get nothing out of paying more money to the same old teachers, including those who perform poorly, and they have a point. The solution is that, in exchange for the upgrade in pay, teachers will have to forgo the union-style job protections that they now enjoy. Principals will set salaries and hand out raises (or cuts) according to merit, and they can fire teachers who don’t measure up. In return, principals will be held accountable for the performance of their school on standardized tests.
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