On Tuesday, on a 30-1 vote, the Senate passed a budget for the forthcoming 2016-17 biennium. Their version, which proposes $211.4 billion in all-funds spending for the two-year cycle, is almost two billion dollars larger than the House’s, which passed on April 1st, but the spending breakdown is similar, and broadly sound. The most notable and controversial budget-related discrepancy between the chambers has to do with tax cuts. The House is calling for $4.9 billion in biennial tax cuts, as laid out by Ways and Means Chair Dennis Bonnen: a 25 percent cut in the franchise tax rate plus a cut in the state sales tax rate. The Senate proposal, which works out to $4.6 billion, proposes franchise tax cuts and property tax relief.
Both proposals are ominous from a certain perspective. Democrats in both chambers have argued that the money would be better used for critical priorities like public education, higher education, roads, or water. And even Republicans have agreed; Kevin Eltife, in the Senate, has been the most vocal skeptic of the session’s tax-cut fever, arguing that it would be better to use the revenue available to tackle the state’s fiscal obligations, such as public pension liabilities. As I’ve written before, I’m with the skeptics; Texas already has one of the lowest average state tax burdens (and one of the lowest average tax rates) in the country, and one of the lowest rates of state spending per capita. We could always aspire to spend less, like Wyoming, but we have five million children enrolled in public school, and their enrollment is closer to five; more concretely, no one has proposed $4.7 billion in biennial spending cuts, or admitted that they’re happy to let their counterparts in the future take the blame for proposing the tax hikes that will be inevitable in the absence of such cuts.
On the other hand, if you’re in the “death to all taxes” camp, the two proposals may seem equally appealing, because they’re about the same size; as Senate Finance Chair Jane Nelson put it, “we’re both right.” And Governor Abbott is apparently similarly agnostic. Back in January, he threatened to veto any budget that didn’t include some business tax relief, and in his state of the state he specifically called for $2.2 billion in property tax cuts. But yesterday, as R.G. wrote, he offered the clarification that he wouldn’t necessarily veto a budget that doesn’t include property tax relief, and indicated that he is open to considering either tax-cut package.
In my view, this was an unnecessary clarification on Abbott’s part. He had never threatened to veto a budget that doesn’t include property tax relief and—state of the state notwithstanding—it doesn’t really make sense to demand that the state cut a tax that it is constitutionally barred from levying in the first place. However, it was probably a worthwhile clarification, because the House and Senate are apparently prepared to go to war over this. Last week, on the day that Bonnen (joined by most of the House Republican caucus) laid out his preferred tax cuts, Lieutenant Governor Dan Patrick issued a blistering statement about that chamber’s proposal, and yesterday he reiterated the arguments on behalf of the Senate’s plan. Since Nelson is the chair of Senate Finance, her expressed agnosticism is telling. But since Patrick is the lieutenant governor, the Senate can be expected to follow his lead.
In the end, I expect the House to prevail, because Bonnen’s plan is better than Patrick’s for at least half a dozen reasons.