WEEK IN REVIEW
FINANCE COMMITTEE WEIGHS TAX RELIEF PLANS
(Austin) — The Senate Finance committee this week dedicated three hearings to considering a number of tax relief plans aimed at changing the way the state raises revenue. Governor Greg Abbott has promised to reject any budget that doesn't include significant property and franchise tax cuts, and the Senate plan already has $4 billion earmarked for such cuts. The final amount of tax cuts and how they will be realized is still up in the air. "What form that takes we're going to figure out," said Senate Finance Chair Jane Nelson, "It is certainly my intention to go above and beyond what is in Senate Bill 2 [the Senate budget bill]."
Monday was focused on property tax relief. One of the measures considered is a bill by Nelson that would raise the homestead exemption and index it to home prices. The last time the homestead exemption was raised was in 1996 when it was increased to $15,000. As home values have increased, the tax savings from this exemption have decreased, but Nelson's plan would let the exemption rise and fall as property values change. It would set the homestead exemption at 25 percent of the average home price in the state.
Tuesday, the committee considered franchise tax cuts, and many members expressed dissatisfaction with how the tax has worked since it was passed in 2006. According to the testimony from the Legislative Budget Board, the tax has never brought in the amount of revenue it was supposed to. Very few businesses end up owing any franchise tax, but more than a million still have to go through the process of filing for it. "Having to go to a CPA and take in your returns and the compliance issues and the irritation of having to do that is real for those small business individuals," said Georgetown Senator Charles Schwertner. He proposed a measure that would exempt businesses that make less than $4 million from the franchise tax, an increase over the current exemption of $1 million. Schwertner said that would remove 62,000 small businesses from the tax rolls while only decreasing franchise tax revenues by eight percent.
Other lawmakers advocated getting rid of the levy altogether. Wichita Falls Senator Craig Estes was one who offered a bill that would simply do away with the franchise tax. "It's been confusing, non-competitive, inequitable and has repeatedly failed to meet revenue estimate," he said.
One of the major debates facing members of the Finance Committee is how to balance paying for the critical needs of the state while offering meaningful tax relief. One of the barriers to this is the constitutional spending cap, which limits the amount the Legislature can appropriate to an amount tied to economic growth. Money appropriated to cut taxes or pay down debt counts against that cap, which Nelson told reporters at a Wednesday press conference doesn't make sense. "We all know that the intent of the provision was to control the growth of government," she said. "Giving money back to the taxpayers does not grow government." She, along with Finance Committee Vice Chair Juan "Chuy" Hinojosa and Tyler Senator Kevin Eltife introduced a series of bills that would permit the voters of Texas to decide whether or not spending aimed at tax cuts and debt relief should count against the spending cap. Nelson said she believes voters would agree that it should not.
The Senate will reconvene on Monday, March 9, at 2 p.m.