Note
Studied by 35 people
Chapter 12
Talking about Taxing and Spending
State - taxes on real estate
Nation - sales
History of the Texas Constitution
Constitution had specific clauses for the growth of business
Banks, Railways, Oil Companies
Texas today is dramatically different from what the framers of the Constitution intended
Business-friendly Texas
Dangers of Monopolies
anti-trust laws- laws designed to prevent the existence of monopolies in the economic sphere
Focus on policymaking and taxes
The Policy-making Process
Policy is determined through a variety of state government actors
Lots of players involved with policymaking in Texas
Texas legislature - writing the laws
Always learning
arg against term limits - takes time to learn how to be a good legislature
Texas Governor - executive orders/action
Bureaucracy - interpreting laws
enforce solutions proposed
Local policy comes from the city or county governments
“Lot’s of trial and error. Thats a big part of their learning”
Jack Byham
Policy: the plan of action adopted by the government
Agenda setting: the stage in which various actors prioritize the problems facing the state
Policy Formation: the stage in which possible solutions are developed and debated
Policy Adoption: the state in which formal government action takes place
Policy Implementation: The state in which the policy is carried out in the state agencies
Policy Evaluation: the stage in which implementation of a policy is examined to see if policy goals are being met
There are three different types of policy:
Redistribute Policy: Moves benefits from one group to another in an attempt to make society more equal
take from the rich and give to the poor
A population you can take from to give that to some other group
Distributive Policy: Moves benefits to meet the needs of citizens but does so without targeting any one group as the source of money
No clear one or two groups the resources are being drawn from
everyone contributes and the money goes where it needs
Regulatory Policy: Attempts to limit the actions of individuals or corporations to ensure a fair marketplace or protect the public from negative consequences of business activity
making the rich pay their fair share
Three Political cultures
traditionalistic - status quo
moralistic - govt and its power and monopolies are the preferred engines of social change geared by our ideas of what is good
individualistic - govt is in the way
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Sources of State Revenue: Texas
Different Taxes that Texans Pay
Fiscal Policy: How the government influences the economy through taxing and spending
Fiscal policy shapes the overall health of the economy
Policies to encourage specific businesses and activities and discourage others
Subsidies: Incentives designed to encourage the production or purchase of certain goods to stimulate or support some business.
Taxes in Texas History
State Constitution allowed for offsets to property tax
Household furniture or other property
World War 1
Three-fifths of Texas revenue was property tax
1893 - taxing corporation
1905 - taxing oil production
1907 - taxing inheritance
1917 - taxing motor vehicles
1923 - taxing gasoline
Texas moved away from taxing property
State Taxes Today
Income tax: A tax calculated as a percentage of income earned in a year
General Sales tax: An across-the-board tax imposed on goods and services sold.
1961 - First general tax implemented
Two percent tax on goods and services
Went up to 6.25 percent and expanded what goods and services are.
Food products for human consumption are exempt from sales tax
Except soda, candy, or prepared meals
1967- Local Sales and Use Tax Act
Allows cities to add local tax of 1 percent on all sales
Largest source of tax revenue
2020 - Max rate is 8.25 percent
Cities are allows a minimum of 2 percent
COunties are allowed a maximum of 1.5 percent
Transit authorities: 1 percent
Special purpose districts 2 percent
2019 - State sales tax provides $34 billion or 55 percent of Texas taxes
Online retailers needs to collect sales tax
General Sales Tax
Texas uses tax to guide behavior
No tax on food, but tax at a restaurant
No tax on fixing a car, but tax on fixing an appliance
No tax on car wash, tax on dry cleaning
Gasoline and Severence Taxes
Gas tax is based on a percent of the cost of product
Fixed rate twenty cents a gallon
One of the lowest in the nation
Gas tax hasn’t been raised since 1991
1901 - oil found at Spindletop
Severence Tax: a tax on natural resources charged when the resources are “served” from the earth
4.6 percent tax on market value from oil
1950 - oil tax was one third of Texas revenue
2020 - less than 6 percent of Texas tax revenue
Natural gas - taxed at 7.5 percent of market value
Liquefied gas — fifteen cents per gallon
Franchise Tax
Franchise Tax: The primary tax on business in Texas, which is based on the taxable margin of each company
Tax on Businesses
Tax on approximate profit
In 2015 Texas legislature reduced franchise by 25 percent
Sing Tax
Sin Tax: A tax on products or activities such as cigarettes or gambling that some legislators would like to discourage
Excise tax: A tax paid at the time of purchase, with the cost of the tax included in the price of the product.
First sin tax in 1879
Two-cent tax on drink and half-cent tax per beer
Texas - separate taxes on liquor, beer, wine, malt liquor, and mixed drinks
Tobacco tax
Passe dMay 2005
Help pays for schools
Live Nude Entertainment
$5 fee for anyone entering for live nude entertainment and consumption of alcohol
AKA: POLE TAX
Bikini Bars: Sued and won stating that being ina bikini or painted on latex in not nude
No tax on vaping
Property taxes
The single largest source of tax revenue
Texas Constitution prohibits the state government form collecting property tax
Property Taxes: A tax on the value of real estate that is paid by the property owner: used by county and local governments to fund such programs as public schools
FIfty-four percent of property taxes fund independent school districts
Cuts in education funding is offset by high property tax
Property tax reflects economic growth
Raising property taxes reflect a strong economy
Economic growth leads to population growth
Texas has some fo the fastes-growing large cities
Different levels of government enact distinct taxes and pay for different services, creating a complicated mixed-funding system
Example: effects of oil and gas boom
Ad volorem tax: Tax based on property value, which is subject to periodic appraisals
Appraisal: The official estimate of a property’s value
Stealth tax increase - Raise the value of homes, even if the homes aren’t for sale
the state constitution prohibits the state from collecting property taxes
Capped annual increase at 10 percent
Homestead exemption of 40,000 for school taxes
Seniors and disabled get addition 10,000 exemption
Property tax increase put pressure on legislature to reform tax system
2006 - Legislature reduced school property taxes by one third
Plan traded lower school property taxes for higher taxes on business, sin tax, and used car purchasers
Winners and Losers Under the Texas Tax System
Progressive Tax: a graduated tax, such as income, which taxes people with higher incomes at higher rates
Regressive tax: a tax that takes a higher proportion of income from people with lower incomes than from people with higher incomes
Texas is based on regressive tax
Poor and working-class Texans, who contribute a greater share of their income, are the loses of a regressive tax system
Local taxes = Local control
Property tax will always go up
It has been debated to replace all other taxes with just a simple income tax
Sources of State Revenue: Other Resources
Federal grants
2019 - texas got 103 billion in federal grants
Dwarfed all other sources of revenue
Federal funds come with trings attached
Interest, Licensing, and Lottery Funds
Alternative sources of funding
Permanent school fund (PSF): a fund set aside to finance education in Texas; the state’s largest source of investment income
Lottery tickets fund schools
Spending and Budgeting
The Texas budget determines how and where Texas will spend that money
Budgeting is a clear statement of texas priorities
The Legislative Budget Board (LBB):
FOudned in 1949
Coordinates the budgets process in Texas
Co-chaired by the Speaker of the house and Lieutenant governor
Has a lot of political clout
Budget process
LBB sends out Legislative Appropriations Request (LAR) for agencies to submit their budget
LAR is a performance measure to agge the effectiveness of the agency
LBB and GOBPP asses the LAR
LBB presents to the legislature
Legislature reviews, adjusts, and passes the budgets
Comptroller certifies the state will have the money to meet the budget
Governmor signs the budget
Line-item veto power
State Budgeting
Fiscal conservatism and distrust of govt
only pay what you have
State constitution limits the state’s ability to spend money
The state constitution requires a balanced budget
“Pay-as-you-go” system: Fiscal discipline, adopted by Texas and many other states, which requires a balanced budget and permits borrowing only under very few circumstances
Pay as you go - can be suspended with a four-fifths vote of the Texas House and Senate
The Constitution was amended in 1972 to rein in spending and avoid outpacing the state’s economy
Constitution limits additional debt based on ration, and mandates no more than 1 percent of the budget spent on “needy dependent children”
The comptroller of public accounts is responsible for the two-year estimate based on the budget.
State can sell bonds to supplement the budget
Revenue from bonds must not exceed 5 percent of the state’s general revenue
State Spending
Forty percent of spending is health and human services
Medicaid, mental health, CHIP, Temporary assistance for needy families (TANF), unemployment and workers’ compensation
Twenty-eight percent of education spending
Eight percent on transportation
Eight percent on employee benefits and retirement
Seven percent of general government spending
Five percent to debt service
The Rainy Day Fund
Economic Stabilization Fund (ESF)
1988 constitutional amendment to offset the oil and gas market unreliability
ESF receives funds form oil production tax collection and natural gas tax collections
One-half of any unused general revenue funds at the end of each biennial budget
Using the fund is difficult
Comptroller has to certify that there is a budget deficit.
Legislature requires a three-fiths vote of each house
Legislature can have a two-thirds vote of members present to use the ESF for general purpose.
The ESP is now political
Budget cuts required the ESF to pay for education
Economic downturn in 2011
Some advocated in ESF for everyday use
Some said the downturn was not a rainy day
2013: Voters approved ESF for water projects
After third session - ESF was used for State Highway fund
Now ESF and State High Fund split the oil and gas revenue
The fund is the second largest of any state
Fiscal Policy Tools
Tax Expenditures
Tax Expenditures: Any reduction in tax liabilities that result from tax benefits to particular taxpayers rather than taxpayers in general.
Expenditures do not show up on a budget
Sales tax exemptions are the largest expenditure
The tax-free holiday celebrated annually
Keeps certain products exempt from sales tax
Purchase of energy-efficient appliances
Certain professions are eligible for tax expenditures
Farming
Subsidies
Texas Enterprise Fund (TEF)
Using subsidies to bring business to Texas
Requires that local governments to include economic incentives as well for business
Usually includes basic economic development deals for tax exemptions or grants
The TEF is usually dwarfed by local subsidies
Three different funds to attract business
events trust fund
Major events Reimburstment Program
Motor Sports Racing Trust Fund
Contributions
$1 from local government to $6.25 from state government
Funds only available for events that have competitive bids and involve community competing with cities outside Texas to host the event
University Research Initiative
Created to attract major researchers to Texas
Winners and Losers Under Texas’s Fiscal Policy
Texas prefers a system of free enterprise
Free market should pick economic winners
Texas Moving Image Industry Incentive Program
Provides incentives for films, televisions commercials, and video games produced in the state
Idea is to create jobs and build the economy
Texas used TEF to help Apple come to texas
Disadvantage:
Favoring business over consumers can create a need for government oversight
The political implications focus on favoring certain companies over others