Will the Senate Choose Tax Breaks Or Investments in Texas’ Future?

Dick Lavine, Senior Fiscal Analyst at the Center for Public Policy Priorities

The Senate this week will consider tax giveaways that would reduce the amount available to support public services in the next state budget by $1 billion. Supporters claim these tax breaks bring businesses to Texas and encourage economic development, but every dollar lost in revenue is a dollar lost from funding for education and health & human services. These are the kind of investments that would ensure a skilled workforce, access to good jobs, and shared economic prosperity for the future generations of Texans.

HB 500 would cost the budget $650 million. The bill would cut the franchise tax by 5 percent across the board, reducing the tax rate paid by most businesses from 1 percent to 0.95 percent. Most companies will never notice the difference, but the Texas would be better off using the money to improve college access and job training for Texas students, strengthening both their families and the state economy in the future. The bill would also exempt businesses with less than $1 million in gross receipts from paying any franchise tax, even if they were profitable and could afford to help support investments in Texas’ future.

HB 800 would create a new tax break for companies doing research and development, cutting $240 million from potential support for the 2014-15 budget and $305 million from the 2016-17 budget. A better way to support the growth in future technologies would be for the state to partner with the high-tech industry to provide educational and training programs that develop the human resources needed by the industry. This is exactly the conclusion reached by a tax review commission in the state of Washington — the home of Microsoft and Amazon — which recommended letting that state’s R&D tax break expire.

HB 1133 would create a new sales tax exemption for cable TV, Internet access, and telecommunications services at a cost of $100 million each biennium. Texas’ revenue system already lags behind economic growth, which is why we are always short of what we need for investments in public services. This bill would exempt the fastest growing sectors of the economy of the future — digging increasingly deeper holes in future budgets.

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