Watching the Texas House today, I found myself wondering whether it would be sacrilegious and/or offensive to thank the Lord Jesus for Joe Straus, who as Speaker of the Texas House is effectively running state government right now.
The main event on the floor, as R.G. previewed this morning, was the preliminary passage of two tax bills authored by Ways & Means Chairman Dennis Bonnen, one proposing a cut to the state sales tax rate, the other to the franchise tax rate. Taken together, the result would be $4.9 billion in biennial tax cuts, and a number of Democrats, including Donna Howard, Chris Turner, Sylvester Turner, and Armando Walle, offered cogent arguments against making such cuts, especially at a moment when the state economy is vulnerable as a result of lowish oil prices, and with the school finance ruling still pending.
Since this is Texas, however, the tax cuts passed. The only surprise was in the lopsided margins. 141 legislators voted for HB 31, the sales tax bill; no one voted against it. More than half the Democrats in the chamber voted against the franchise tax cuts, HB 32, but it nonetheless passed easily, 116-29. Perhaps most significant at all was a vote cast during the debate over the latter bill itself.
As laid out by Bonnen, the bill calls for a 25% across-the-board cut in the franchise tax rate, which currently applies to all businesses in Texas except for those with less than $1m in annual receipts receipts. John Smithee, a Republican, proposed an amendment that would have raised the small-business exemption to businesses with less than $4m in annual receipts, and cut the rate for everyone else by 20%. After some debate over the merits of Smithee’s amendment, the House voted to table it, 120-16. Among the 120 was Straus himself; the Speaker of the House usually doesn’t vote at all, but today he made a point of doing so, and was greeted with some applause from the floor.
The margin stuck out because on the merits, there was nothing wrong with Smithee’s alternative. He was effectively advocating the Senate’s version of franchise tax cuts, which is amazingly sound, despite the fact that it was conceived in the 2015 Texas Senate. Whether it’s better than the House plan is debatable, but it’s one of those serious debates where both sides have good arguments. The Senate plan, of a smaller across-the-board cut combined with a broader exemption for small business, targets the tax relief at the businesses that could most use it. The House version is more inclusive, and avoids the potential pitfalls of a fully bifurcated system. The fact that both approaches are credible can be inferred from the vote itself, which didn’t fall along party lines. Bonnen was backed by most of the chamber’s Republicans and Democrats. Smithee’s supporters included Republicans like Matt Rinaldi and Jonathan Stickland, and Democrats like Yvonne Davis and Jessica Farrar.
Even more oddly, Bonnen was backed by four of the five Republicans who voted against the House budget: Molly White, Matt Schaefer, Tony Tinderholt, and David Simpson. The latter, of course, follows his own star. But the other three rarely contravene the scorecard czars at EmpowerTexans, who had called on legislators to support Smithee’s amendment. Since EmpowerTexans is otherwise in the “all tax cuts good tax cuts” camp, its preference for Smithee’s version of franchise tax cuts can only be interpreted as part of a more general campaign against things affiliated with Straus. And since Smithee’s version of franchise tax cuts is wholly defensible, conservatives who wanted to cast a vote against the House leadership could have done so with impunity. That’s a free pass to posture, and very few politicians took it. As with HB1, the budget bill, Bonnen’s bills elicited real debate and valid criticism before passing with overwhelming bipartisan support.
The implication is clear. On fiscal issues, at least, the House is circling the wagons. Phew! The passage of the sales tax bill moves the Lege one step forward to the conflagration R.G. describes between the House and the lieutenant governo, who wants property tax relief. But the House’s united front on both of today’s bills underlines the strength of its negotiating position. The Senate’s support for Patrick’s property tax relief is paper-thin, as far as I can tell; even Jane Nelson, the Chair of Senate Finance, is agnostic. And outside the Senate, I haven’t found anyone willing to die on this hill, other than the lieutenant governor himself. Michael Quinn Sullivan, as R.G. noted this morning, heavily implied that the property tax relief is better than the sales tax cuts. But Sullivan simultaneously took pains to note that the scorecard would look kindly on sales tax cuts too, and even armed with a ridiculous internet poll, the only way he could find majority support for the Senate plan was by apparently falsifying the results. Patrick’s only real hope for winning this fight is that Greg Abbott will back him up–and to be fair, many people share R.G.’s hunch, that the governor is “leaning toward” the property tax relief.
I continue to disagree. At this point I think it’s weird that so many people think Abbott is quietly rooting for the Senate plan. It’s true that the governor’s budget includes $2.2bn in property tax relief, and specifically suggests that the goal could be achieved by property tax relief for school districts. But his much-cited public comment, that he would “insist” on property tax relief, was immediately followed by a logical condition: “The property tax reduction must be lasting – it can’t be allowed to evaporate by rising property valuations.” A similar condition appears in his draft budget: “Reductions should be combined with comprehensive structural and policy reforms.”
The Senate’s property tax relief proposal includes no such reforms. The Senate’s leaders, in fact, aren’t lifting a finger to advance the real reforms that have been proposed. SB 186, by Paul Bettencourt, would lower the rollback rate from 8% to 4% and would give residents the right to vote on lowering their tax rate whenever local (city or county) collections grow in excess of that figure; it’s languishing in committee. SB 156, by Robert Nichols, would tighten the appraisal cap; it hasn’t even been heard in Senate Finance. Such reforms are ferociously opposed by the local governments which would be affected by them. That’s how you can tell they would be meaningful.
By contrast, the property tax relief, absent any reforms, would be meaningless at best. The average homeowner would save about $210 a year, in theory, but since property taxes are paid in a bundle, the savings on school district taxes would easily be subsumed, even if city and county tax rates remain the same, because of growing home values.
Even worse, the Senate’s property tax relief plan could easily hurt the prospects for any future attempts at property tax reform. If it’s too difficult to pass property tax reform this year, with a brand-new lieutenant governor and governor both insisting that the Lege do something with the words “property taxes” in the title, it’s not going to be any easier to do so in 2017, when state revenue collections have been constrained by franchise tax relief and the lieutenant governor is convinced that he’s already fixed the problem. I’m sure that Abbott, like most Texans, can see the need for property tax reform. It doesn’t follow that he is committed to any plan packaged as such, especially one that ultimately imperils his own stated goal.
Still, if Abbott somehow nonetheless prefers the property tax relief, he really ought to speak up soon. The House and Senate each have five members on the budget conference committee. But after today, it’s pretty clear that the House delegation has many more people backing them up.
(AP Photo/Austin American Statesman, by Ricardo B. Brazziell)