Stop bashing the business tax
Wed June 18, 2008 8:22 pm

One of the handouts I picked up at the state Republican convention was another attack on the Republican leadership and the “Perry Business Tax” from the “Conservative Republicans of Texas.” The organization’s president is longtime conservative activist Steven Hotze. The handout says:

The Perry Business Tax, which passed with the help of the Texas House and Senate Republican leadership, is a state income tax which violates the Texas Constitution. Its constitutionality will be tested shortly in the courts after the first payments are made.

Now there’s a fun lawsuit. I can’t wait to see what the Texas Supreme Court does with that one. If they bust the tax, the school districts will file a school finance lawsuit the next day. If they uphold the constitutionality of the tax, the Dan Patricks and the Steven Hotzes will go after the court.

Here are six reasons why the business tax was the right thing to do:
* If the Legislature hadn’t reduced the reliance on property taxes, the courts would have closed the schools.
* The property tax fell inequitably on businesses. A big box store paid lots of taxes to the state even though it might have small profit margins. A big law firm paid no property taxes to the state.
* The old corporate franchise tax brought in less money every year because of loopholes that allowed companies to reorganize as partnerships.
* The reliance on property taxes was based upon an economic model–that heavy industry was the backbone of the state’s economy–that no longer existed. Manufacturing has a shrinking share of the Texas economy. Professional services have a growing share of the Texas economy but paid little to nothing in property taxes. Consequently, oil and gas, petrochemicals, utilities, and technology plants bore the burden of the tax system.
* The businesses that are complaining now avoided paying taxes for decades. Doctors, lawyers, architects, CPAs, consultants, engineers, financial advisers, insurance agencies, real estate agencies–they didn’t need land for their businesses, just offices, and so they paid very little in local school property taxes.
* Business has a huge stake in the schools. The schools help educate and train their employees. Business ought to contribute to the cost of that education.

Hotze’s handout says, “This tax hits small business and requires them to pay a tax which on average will be 10% of a business’s profit. This takes money out of the hands of businesses and pours it into the coffers of state government to grow its already bloated bureaucracies and create more entitlement programs….” But small businesses that are truly small have an exemption. And what’s this about bloated bureaucracies? The DPS can’t even afford two guards at the governor’s mansion to prevent arson. Some sections of prison units have been shut down because prisons are understaffed across the state. As for entitlement programs, the state has been sued by nursing homes and by advocates for poor children over the inadequacy of Medicaid funding and services. (The state settled both lawsuits.) And the business tax revenue was never intended to pay for general government; it’s for property tax relief as part of the school finance system, and even that has fallen far short of expectations. The business tax was the right thing to do–and it may have been the only thing to do. Texas is constitutionally prohibited from having a state income tax; it is constitutionally prohibited from having a statewide property tax; and that leaves the sales tax, the 6.25% rate of which (8.25% in urban areas) is higher than the rate in all other states except California (7.25%), Minnesota (6.5%), Nevada (6.5%), and Illinois (same as Texas). The business tax isn’t perfect, but it is better than the alternatives. Like all ideologues, Hotze sees the perfect as the enemy of the good.

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