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Rising Tax Revenue Should Not Equal More Government Spending

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Two recent reports provide evidence of continued economic stability and booming oil and gas production in Texas.

With abundant job growth in the state, the Texas Comptroller’s Office announced that last month the state collected $2.01 billion in sales tax. Compared with September 2012, this is a 2.7 percent increase. From the Comptroller’s press release,

“State sales tax revenue collections continued to grow at a moderate pace,” Combs said. “Growth was led by collections from the construction, telecommunications and retail sectors. State sales tax revenue has now increased for 42 consecutive months.”

In another report, the Texas Taxpayers and Research Association (TTARA) noted that the Economic Stabilization Fund (ESF), otherwise known as the “Rainy Day Fund,” would increase to $11.8 billion by the end of 2015 from oil and gas revenues and higher thereafter. According to their report,

"Over the next several years, Texas is on a course to deposit over $20 billion into the Rainy Day Fund—an average of over $3 billion annually, setting new records each year—and that is based on a conservative estimate of world petroleum markets and oil and gas activity in the state."

The facts are that Texas leads the nation in producing these fossil fuels and produces almost 25 percent of the nation’s natural gas. Although a similar oil boom-bust cycle to the one in the 1980s could occur this time around, this boom appears sustainable in the short run from vast reserves in the Barnett, Eagle Ford, and Permian Basin shale plays. These large reserves and potential oil and gas production increases for years to come support this report’s estimates of more ESF revenues.

The rise in the sales tax and ESF revenues will no doubt lead some legislators to demand these funds be spent; however, they should resist this temptation.

In the 83rd Legislature, demand for ESF dollars was on display. Specifically, voters could approve a constitutional amendment on the November 2013 ballot that would dedicate $2 billion of the state’s ESF to fund water projects or a constitutional amendment on the November 2014 ballot that would re-direct $1.2 billion from the ESF to fund transportation projects.

If additional revenues continue to be spent, the expenditures will be baked into future spending levels and burden taxpayers in the process.

A better approach for efficiently allocating these additional funds would be to cut the sales tax. This would not only reduce the tax burden paid by Texans, but also it will leave more dollars in the private sector and improve the state’s business tax climate to provide an economic environment that promotes economic prosperity.