At a press conference on Monday, Governor Perry called for $1.6 billion in business tax cuts–including 5 percent off the margins tax–in an attempt to make good on his promise for “tax relief” this session. What does this prove? That Perry never seems to run out of bad ideas.
In fact, this is one of the worst. He wants to cut a tax that is underperforming. The state’s business margins tax was created in the middle of the previous decade to close the gap between the cost of a 33% cut in school property taxes, mandated by the Texas Supreme Court and enacted in 2003, and the amount required to sustain the Foundation School Program. As most readers are well aware, the margins tax never brought in the amount it was predicted to produce. As a result, with each succeeding biennium, the underperformance of the margins tax opened a recurring $2 billion structural deficit in the state budget, which is one reason the state’s budget, and particularly education funding, has been in trouble for most of the first decade of the 21st century. The structural deficit, which the LBB acknowledged in 2009, is a major reason for the chronic underfunding of education.
What can be accomplished by giving a tax cut on a tax that does not produce tax revenue? The margins tax does nothing but dig the hole deeper and widen the structural deficit. How does it make sense to raid the Rainy Day Fund for a tax cut? The Rainy Day Fund is supposed to be a savings account, not a means of giving away the state’s money to people who don’t need it. The state’s leaders should be looking for ways to close the structural deficit, not widen it.