Headline From the Future: Who Passed All These Short-Sighted Tax Cuts?

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

Public attention is currently focused on the large tax-cut bills that both the House and the Senate passed, in different forms. The House plan, which would reduce the rates of the sales and franchise tax, would cut the amount of General Revenue (GR) available to fund the 2016-17 budget by $4.9 billion. The Senate plan, which would increase the school-tax homestead exemption and make smaller cuts in the franchise tax, would shrink available GR by $4.5 billion.

Both plans mistakenly place tax cuts ahead of investments in schools, colleges, and health care as a strategy for economy growth.

Billions Less GR Expected for 2018-19 Budget

This error will only grow over time. Many of the tax cuts that have already passed either the House or the Senate would increase their drain on General Revenue dramatically in the 2018-19 biennium. Some of the tax cuts cannot take effect until voters approve constitutional amendments allowing those cuts in elections later this year, or in 2016. Others phase in the extent of the cuts to reduce their impact on the budget currently in the final stages of negotiation.

General Revenue is available to budget writers to distribute largely as they wish, compared to revenue that is dedicated to specific funds or uses. Decisions made in the coming weeks will dramatically constrain the 2018-19 budget, which will not be written for two years.

For instance, the House plan to divert sales tax revenue from General Revenue to the Highway Fund would reduce GR in the budget being written now by $633 million, but cut the GR available to write the budget after that by $7.3 billion. The Senate version would divert motor-vehicle sales taxes, rather than general sales taxes, but with similar results: no effect on the budget being written now, but $5.7 billion less available GR in 2018-19.

House Bill 7, part of the plan to reduce the reliance on General Revenue Dedicated funds to certify the budget, is a step toward greater transparency. But it would reduce General Revenue available to write the 2016-17 budget by $150.4 millionand take more than twice that amount – $328.3 million – from the 2018-19 budget. The House’s goal is to reduce dedicated balances used for certification from $4.7 billion to $2.9 billion, through H.B .7 and spending bills.

The Senate’s proposed homestead exemption, which requires state revenue to replace lost local school property tax collections, would increase in cost from $2.2 billion in 2016-17 to $2.8 billion in 2018-19 – a jump of 28 percent, or more than $600 million!

And then there are the bills to expand the scope of the Chapter 313 program of school property tax abatement. The costs of these bills are delayed by the nature of the program, but then explode. For instance, the bill to allow projects spanning more than one school district (HB 2826 on the May 4 Calendar) would have minimal cost through 2019, then grow rapidly to require the 2024-25 budget to cover $114.6 million in foregone property tax revenue.

As of May 3, the House has passed bills that would reduce General Revenue by $5.3 billion in 2016-17, but almost twice as much – $10 billion – in 2018-19. Senate-passed bills would cut General Revenue by $4.8 billion in 2016-17, but by $11.7 billion in 2018-19.

Of course, many bills that have passed one chamber will not pass the second. You cannot add the House and Senate numbers. Two bills with similar aims, but divergent details, will emerge as a single bill by the end of the session.

But, whatever mix of tax-cut and budget-dedication bills pass, you should look at its effect not just on the budget being written now, but also on the budget lawmakers will write two years from now.

The current Legislative session started with a $7.5 billion cash balance. The next Legislature is unlike to enjoy a similar cash cushion. Only in 2017 will legislators really have to face the consequences for their current decisions.

At the Center for Public Policy Priorities, we believe in a Texas that offers everyone the chance to compete and succeed in life. We envision a Texas where everyone is healthy, well-educated, and financially secure. We want the best Texas - a proud state that sets the bar nationally by expanding opportunity for all. CPPP is an independent public policy organization that uses data and analysis to advocate for solutions that enable Texans of all backgrounds to reach their full potential. We dare Texas to be the best state for hard-working people and their families.

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