Testimony before the House Select Committee on Fiscal Stability outlining the Foundation's recommendations on how to address the fiscal and economic challenges facing Texas.
Texas faces some significant transportation challenges, but much of the crisis can be averted if the state rethinks and re-prioritizes transportation funding. This policy perspective examines some alternatives to generate additional transportation revenue without raising taxes and fees.
Lawmakers must make transportation funding and spending more efficient, accountable and transparent. This testimony presents alternatives, including a quick examination of transit spending that could be prioritized towards traffic congestion relief.
Using data from the Census Bureau, this paper examines how Texas homeowners fare in relation to the average U.S. homeowner when it comes to paying property taxes and which Texas counties, in particular, face the highest burden.
Money from the federal government is often thought of as “free,” but, nothing could be further from the truth. The prevalence of federal funds has been shown to adversely affect a state’s economy, increase state government spending, and lead to a decline in state tax revenues.
To be successful, reforming the nation’s health care system must be patient-centered, not government-centered. That’s why our elected officials should consider alternatives to expanding the already massive state-federal Medicaid program.
The state’s prepaid tuition program—the Texas Guaranteed Tuition Plan—will run out of money between 2015 and 2017. By 2030, the program could cost taxpayers as much as $2.1 billion. To avert bankruptcy and keep the program on sound financial footing, reforms need to be made—like those made to the refund policy.
While the positives outnumber the negatives in the state’s new budget, Texas will be well served if its state leaders remain focused on fiscal restraint. The national recession has been punishing to states that lost their budget discipline and abandoned pro-growth tax policies, and Texas should not follow their example.
June 24, 2009
Fiscal Policy 81st Legislative Session in Review By The Honorable Talmadge Heflin
A review of the 81st Texas Legislature’s work on tax and expenditure limits, spending and budget appropriations, financial transparency, and tax reform and tax cuts.
This letter commends the House's May 27 vote to instruct its conferees on HB 300, the Texas Department of Transportation sunset bill, to not accept the Senate's language adding new local-option taxes and fees to the bill. It also summarizes the Foundation's position regarding the local-option tax provisions and the Foundation's principles for addressing the state's transportation needs.
Raising the tax on motor fuels isn’t the only way local communities can raise money for transportation. By reprioritizing their budgets, local governments can use existing resources to help fund this “crisis” area.
This memorandum expresses the Foundation's concerns regarding a proposed constitutional amendment that would authorize local communities to enact new local gasoline taxes and additional vehicle registration fees to pay for road and rail projects, and presents the Foundation's research on alternative methods to address the state's transportation needs.
Under SB 855, Texas drivers could soon be walloped by higher gas taxes. If transportation funding really is in a state of crisis however, the state should first end the practice of diversions.
Texas motorists face a potential 125 percent increase in gas taxes over the next several years if SB 855 makes it through the House. Is now the time for such a huge tax increase?
This letter expresses the Foundation's concerns regarding pending legislation that would index the state's current gasoline tax and create a new 10-cent "local option" gasoline tax, potentially raising gas taxes by 125%.
To raise more money for transportation, legislators are considering indexing the gas tax to inflation. But this approach may very well put tax increases on autopilot for years to come.
This letter explains concerns shared by the Texas Public Policy Foundation, Texas Eagle Forum, Free Market Foundation, Texans for Fiscal Responsibility, and Americans for Prosperity-Texas on several transportation tax proposals pending before the Texas House.
A sound tax system is simple to understand, not overly costly
to implement, and minimizes economic distortions. Compared
to other states, Texas’ current tax system can be improved by repealing property taxes and replacing the revenues with a reformed sales tax.
This testimony expresses the Foundation's position on proposed Texas legislation that would establish several new locally imposed taxes and fees to fund transportation projects.
Local governments already have a powerful array of transportation tools at their disposal—one of which is a transit authority, which a local community can create and fund by dedicating a portion of its local sales tax revenue to it.
Government spending crowds out private sector spending, diminishing the private economy’s rate of growth and costing Texans jobs. In other words, increased government spending makes citizens poorer because it takes their money now, while also reducing their future income and employment prospects. This fact is at the heart of the debate about whether or not Texas should accept federal stimulus money.
This testimony expresses the Foundation's position on two Texas Senate proposals that would establish several new locally imposed taxes and fees to fund transportation projects.
Letter from Texas Public Policy Foundation President Brooke Rollins to Sen. John Carona regarding the Foundation's position on state and local transportation tax increases.
It takes clarity, vision, and leadership to responsibly prepare a biennial budget for the State of Texas. Legislators are called to make difficult decisions that affect the lives of 24 million Texans. In that spirit, we offer these guidelines for drafting the 2010-11 state budget, aimed at promoting the necessary economic conditions for a strong and vibrant Texas.
January 26, 2009
The Business Tax 2009-2010 Legislators' Guide to the Issues By The Honorable Talmadge Heflin and James Quintero
Businesses don’t pay taxes, people do. For every tax government levies on a business, entrepreneurs lose the ability to hire additional employees; managers have less money to give their workers; customers pay higher prices for products; and investors see their returns disappear. In short, everyone is made poorer.
January 26, 2009
Financing Transportation 2009-2010 Legislators' Guide to the Issues By The Honorable Talmadge Heflin and James Quintero
Financing the state’s huge appetite for roadways and infrastructure will certainly be challenging. Texas will either have to raise taxes—a bad move in any economy, but an even worse policy decision in today’s souring economic environment—or look to alternative funding methods. One such method: public-private partnerships (PPPs).
How can taxpayers be confident their tax dollars are being spent wisely on public programs? How does the Legislature know whether or not an agency or program is benefitting
the public more than it is costing them? Answering these questions is not as simple as it may seem.
January 06, 2009
Strengths of the Sales Tax 2009-2010 Legislators' Guide to the Issues By The Honorable Talmadge Heflin and James Quintero
Since taxes are unavoidable, smart fiscal policy dictates that the best tax system is one that offers simplicity, transparency, and does the least amount of damage to an economy. The tax that best meets all of these criteria is the sales tax.
December 16, 2008
Spending Priorities 2009-2010 Legislators' Guide to the Issues By The Honorable Talmadge Heflin and James Quintero
Every two years, legislators must write a new state budget that best serves the people of Texas while also limiting the burden it places on them. In order to write such a budget, the Legislature has to maximize available tax dollars by balancing actual needs and available revenue. Remember, for every dollar the Legislature allocates to one area of the budget, it loses the ability to spend it in another.
December 16, 2008
The Income Tax 2009-2010 Legislators' Guide to the Issues By The Honorable Talmadge Heflin and James Quintero
Even in the face of a national economic downturn, Texas continues to attract employers, create jobs, and stimulate economic activity with its pro-growth, low tax model.
December 16, 2008
Expenditure Limits 2009-2010 Legislators' Guide to the Issues By The Honorable Talmadge Heflin and James Quintero
Texas' TEL is flawed and needs to be improved. One such improvement is to limit the growth of all state and local government spending to population growth plus inflation. Ultimately, taxpayers shoulder the burden of paying for government; therefore, government should shoulder the burden of protecting the taxpayer.
November 30, 2008
Building a Principled Budget A Blueprint for the 2010-11 Biennium By The Honorable Talmadge Heflin and James Quintero
Texas is a national leader in job creation, gross state product, low unemployment rate and foreign direct investment. Will the 81st Legislature preserve these successes by writing a responsible budget that promotes economic growth?
The 4th President of the United States, James Madison recognized the power of information when he said “Knowledge will forever govern ignorance.” Texas is a national leader in equipping her people with knowledge of government through transparency. We challenge the Legislature to build on that position when they meet in January of 2009.
For good or ill, many people reduce the entire pro-growth worldview of supply-side economics down to the “Laffer Curve,” which graphically depicts the tradeoff between tax rates versus the total tax revenues actually collected by the government.
The result of a head-to-head competition between Texas and California is an economic blowout. The economic environment in Texas has significant advantages over California. The implications of this competitive advantage are clear; Texas’ economic prospects are bright and the Texas economy will significantly outperform California’s.
August 07, 2008
Texas' Property Tax Challenge The True Cost of Owning Property in Texas By The Honorable Talmadge Heflin and James Quintero
The cost of owning a home or business in Texas is becoming increasingly prohibitive. Short of totally abolishing the property tax, limiting the growth of local spending to the sum of population growth and inflation is the only meaningful way the Texas Legislature can push back the rising tide of property taxes.
As a matter of policy, the "best" tax is one that does the least possible harm to the economy and to its citizens. With this in mind, lawmakers should continue to focus on delivering tax relief, while shifting from property taxes to consumption-based taxes for the long term.
This paper provides a statistical analysis of the relationship between state tax policy and state economic growth rates. The study concludes that the more rapidly taxes rise with increases in income, the lower the state’s economic growth rate.
This study examines six Texas cities, providing evidence that local property taxes could be much lower if local goverments controlled spending using a tax and expenditure limit based on population growth plus inflation.
The Foundation's policy centers provide a comprehensive review of the 80th Texas Legislature’s work in the areas of education, tax and spending, health care, property rights, electricity, telecommunications taxes, tort reform, and effective justice.
A careful comparison of past biennial revenue estimates and actual revenues appears to indicate that revenue estimates are simply restatements of actual revenues from the previous two years, adjusted for any changes in tax policy or law.
The Texas Legislature has sufficient taxpayer funds in the treasury and enough future revenues to provide additional property tax relief as well as repeal the TIF tax now.
April 24, 2007
The Texas Budget House vs. Senate By Byron Schlomach, Ph.D. and Talmadge Heflin
When looking at growth in the state's budget as accurately as possible--by comparing the previous budget to the current one--both the House and Senate versions of the 2008-09 budget grow faster than population growth and inflation, with the Senate being a little more generous than the House.
Some claim that in recent years the state's budget has not kept up with population growth and inflation. This is not true. In fact, after accounting for the fact that property value increases have reduced state-level spending in public education, state spending is rising, even after accounting for population growth and inflation.
It is inaccurate for anyone to claim that state spending in the House budget is failing to keep pace with population growth and inflation. In fact, even after accounting for the correction of past deferrals, state spending in HB 1 is increasing faster than estimated population growth and inflation. Spending in all areas other than public education is increasing by over 13 percent, five percentage points higher than inflation and population growth are prognosticated to be.
Dedicating a portion of the sales tax--the state's largest general tax--is not good fiscal policy. It would reduce the amount of funds subject to an already weak state expenditure limit in addition to other problems.
This report simulates how the proposed Taxpayer Protection Amendment would have affected Texas had it been implemented in 1991--setting the stage for fundamental expenditure reforms in education, health care, corrections, and transportation.
Using data from the U.S. Census Bureau, this report demonstrates that low tax and spending states enjoyed sizeable decreases in poverty rates during the 1990s. High tax and spending states, meanwhile, suffered increases in poverty rates.
This perspective examines the various approaches to establishing the starting point for the state's budget and which processes ensure the most efficient use of taxpayers' investment in state government.
With a surplus better than $8 billion strong, the Legislature can make Texas the premier high-growth, low-tax economy in the U.S. It should not fail to take advantage of this opportunity.
This series evaluates five recommendations designed to create a more accountable, transparent budget process. The reforms include: strengthening the current spending limit; returning surplus revenues to taxpayers; ensuring dedicated funds are used only for their original purpose; providing greater detail to the state budget; and, posting agencies checkbooks online for public review.
September 20, 2006
Demanding Performance II Outcome and Efficiency Measures By Byron Schlomach, Ph.D. and Talmadge Heflin
Performance budgeting should be more than a slogan or a format. It should be real. Government should provide a return on the dollars it spends, not just in government jobs or for direct recipients of funds, but for everyone in general.
There is a possible formula for eliminating school maintenance and operations property taxes in fewer than 15 years. The formula? Fiscal discipline.
September 06, 2006
Demanding Performance I State and Agency Missions By Talmadge Heflin and Byron Schlomach, Ph.D.
The Legislature, and state government, is to serve Texans as taxpayers--producers and property owners who shoulder the real responsibility for enhancing our standard of living. With well-defined state and agency missions, that mission will be better satisfied.
Texas' TEL is flawed and needs to be improved. The challenge now is to set aside rhetoric and work to improve TELs by addressing the legitimate concerns of honest people on both sides of the issue.
This perspective outlines proposed principles for determining budget priorities, providing certain criteria for legislators to use when faced with hard decisions and limited funds in the state's budget writing process.
With an $8.2 billion surplus, the legislature can make Texas the premier high-growth, low-tax economy in the United States. It should not fail to take advantage of this opportunity.
Claiming that the Texas Tax Relief Act prevents tax relief turns the Constitution on its head and is a poor excuse not to give Texans their money back.
This paper examines the recent focus on property tax relief and the Texas tax system's over-reliance on capital-intensive industries, shedding light on another defect in the franchise tax, a capital defect.
This brief is based on testimony presented before the Senate Finance Committee, March 15, 2006. Foundation chief economist Byron Schlomach, Ph.D., provides a sound case for why Texas should move more toward consumption taxes and away from distorting taxes like the franchise tax.
Instead of arguing tax policy in terms of progressive versus regressive taxes, Texas should instead look to tax policy that keeps taxes low and government limited.
This perspective provides a comparison of two types of taxes--consumption vs. business--and their effects on the state economy. It finds that all taxes are not created equal and they produce very different incentive effects on the state's long-term economic health.
This Policy Brief is the first in a series of reports examining the state's budget. Specifically, this report focuses on overspending of the biennial budget and delves into the issue of state accountability for tax dollars spent.
Overall, Texas’ tax burden is considered one of the lowest in the country. But that image is shattered when one considers the state's effective business tax rate, based on Gross State Product, is the seventh highest rate in the nation. This policy perspective examines the harm that comes from relying on "business" taxes.
This policy brief provides a synopsis of the full research report, "An Examination Of Texas' Economic State," which describe the many factors that determine Texas' economic outlook.
The Texas Public Policy Foundation recently commissioned Stephen Moore, Donna Arduin, and Arthur B. Laffer to evaluate the state's fiscal health. This synopsis summarizes the serious problems diagnosed by the economists as well as the prognosis for a healthier Texas economy.
In this report, economists Stephen Moore, Arthur Laffer, and Donna Arduin describe the many factors that determine a state's economic outlook. Fully a quarter of a state's economic future is in the hands of its policymakers through their fiscal and regulatory policies. The authors rank Texas' economic future according to their own State Competitive Environment Model and provide five policy recommendations that would boost Texas' economic outlook from good to rosy.
As the legislature convenes in special session to consider school finance and education reform, these bullet-point recommendations call for the enactment of a tax system that promotes economic growth and transparent government.
May 01, 2005
The Best Tax Plan For Texans An Economically Sound Solution That Meets Texas’ Revenue Needs, Cuts Property Taxes, And Eliminates The Franchise Tax By Texas Public Policy Foundation
The Texas Public Policy Foundation’s chief economist has calculated that the current franchise
tax can be eliminated, and the school property tax cut 25 cents, without creating a new tax. This document is intended to offer a viable alternative to the current CSHB3. Texas Public
Policy Foundation research shows that business taxes – such as on payroll, gross receipts,
business activity, and business income – will negatively affect the Texas economy and slow job
growth. This plan includes no tax on business, and eliminates the hated business franchise tax.
The economic impacts of gambling have been examined by a large body of national and international research; however, the research findings are mixed. While there is general agreement that gambling can provide large state revenues and that there are socio-economic costs attached to these revenues, researchers disagree about the dollar value assigned to these costs and whether the net fiscal impact is positive or negative.
As the Texas House considers House Bill 3, a tax bill that institutes new taxes in order to fund HB 2 (the education reform bill passed last week), the Texas Public Policy Foundation, the National Federation of Independent Business, and the Texas Conservative Coalition Research Institute are offering a solution that meets revenue needs without doing damage to Texas' economic growth and competitive advantage.
As lawmakers consider ways to fund Texas government, some are advocating an expansion of state-run gambling to include video lottery terminals, or VLTs. With some projecting a $2 billion windfall, VLTs are an attractive source of income, but studies indicate the costs may outweigh the benefits. Two background papers are also available; one summarizes the economic impacts of gambling, the other provides the calculations used to identify the additional fiscal cost of VLTs.
Facts and recommendations taken from "Changing Texas' Tax System: A Fair Tax for Texas?" by economists Richard Vedder and Byron Schlomach.
January 24, 2005
Changing Texas A Fair Tax for Texas? By Richard Vedder, Ph.D. and Byron Schlomach, Ph.D.
Texans are displeased with the state’s current tax system, especially when it comes to property taxes. Though property taxes are levied at the local level, school property taxes are widely considered a state issue, and Texans are demanding change. The idea of a Texas Fair Tax is worth additional consideration.
With the Texas legislature now in session, calls for increased taxes are being sounded by the advocates of numerous programs. Taxes are being proposed on businesses, "the rich," and other sources. But because all taxes are shared, everyone is negatively affected.
January 05, 2005
Pocket Facts Texas Telecommunications By Texas Public Policy Foundation
Facts and recommendations taken from "Texas Telecommunications" by Robert Crandell and Jerry Ellig.
In recent years, tax and expenditure limits – legal limits on how fast government spending and taxes can grow each year based on some measure of economic activity – have received increasing attention at the state level as a result of the success of Colorado’s Taxpayers’ Bill of Rights. Not all tax and expenditure limitation measures are created equal: Texas’ is one of the least effective in the nation.
May 13, 2004
Weighing the Difference An Evaluation Of The Unequal Burden Of State Taxes For Texas Businesses By Milton Holloway
Businesses bearing the highest tax burdens pay more than twice the taxes levied on the group of businesses paying the lowest taxes. While Texas ranks well overall in the level of total taxation per gross state product among the states, some business pay more taxes in Texas than do businesses in many other states.
May 04, 2004
Texas Payroll Tax Searching for New Revenues to Fund Public Schools By John Barrett
Local property taxes fund a substantial portion of public education in Texas today. As
the Texas Legislature provides property tax relief, a new source of education revenue
must be found. This report examines the viability of creating a payroll tax to fund
Texas public schools. Payroll taxes, the author finds, have proven damaging to
businesses, employees, and citizens - increasing the cost of doing business, reducing
employment, depressing wages, reducing economic competiveness, and obstructing
economic growth.
The state of Texas depends heavily on the property tax in order to finance its local governments. While no one likes paying taxes, and taxes need to be kept as low as possible, tax collections must be enforced in order for fairness to be preserved and to ensure honest government. This study by the Foundation's Chief Economist explores a market-based option for improving tax collections without increasing costs to the taxpayer -- and indeed potentially reducing local government operating costs to the benefit of all taxpayers.
April 20, 2004
General Principles for Conservatives School Finance: Education Spending and Taxation By Texas Public Policy Foundation and the Texas Conservative Coalition Research Institute
A bullet-point examination of the principles that should guide the debate on public school finance reform. This paper lays out the general principles of taxation and spending that will lead to long-term solution for improving Texas' schools and economy. Published jointly by the Foundation with the Texas Conservative Coalition Research Institute, a bipartisan organization based in Austin.
With a number of tax structure modification alternatives are under consideration by policymakers in Texas, one alternative is to fund a property tax reduction with an increase in the sales tax. The size of the property tax reduction being discussed is about 50% of the current levy for school maintenance and operations, or $8.5 billion in 2005. The tax change is reviewed from the perspective of several recognized characteristics of good tax policy. This paper analyzes five alternative formulations (scenarios) of the tax shift according to various sales tax rate and sales tax base-broadening options.
March 19, 2004
The Business Activity Tax Is The BAT A Homerun Or A Strike-Out? By Richard Vedder, Ph.D. and Byron Schlomach, Ph.D.
Some in Austin are considering several proposals to replace a portion of the local school property tax with a statewide business activity tax (better known as a value-added tax), as part of the effort to eliminate “Robin Hood.” This report explores the pros and cons of a BAT on the state economy and its role as a source of education financing.
March 10, 2004
Texas-STAMP A Sophisticated Tax Model for Texas By The Beacon Hill Institute at Suffolk University
The benefits and costs of changing the state tax code can now be estimated by a dynamic computer program, developed for the Foundation by the Beacon Hill Institute. Texas-STAMP provides highly detailed information about the effects of specific tax changes on various aspects of the state economy over a five year period. Accessed over the Internet, Texas-STAMP will be used in the halls of the Capitol as legislators debate tax proposals, such as increases in the sales tax, property tax reduction and the introduction of a business activity tax. Texas-STAMP is the centerpiece of the multi-faceted, comprehensive research initiative on school finance that the Foundation began in 2003.
As Texas prepares for a session on public school finance reform, these guiding principles will be used by the Foundation in its research. They are useful in setting expectations for addressing revenue streams, understanding expenditures and even structuring the system of public education.
This brief Policy Perspective explores the way governments in Texas compete with the private sector in a number of commercial markets. While the commercial activities of governments in Texas and throughout the nation are expanding, pre-emption of the private sector by other nations has been steadily decreasing since the 1980’s. Today, many nations have gone farther than the United States in limiting the activities of government in the marketplace.
Governments in Texas duplicate many of the commercial services sold by the private sector; for use in their own operations and sold to taxpayers. State and local governments are now in the business of selling electric power, providing internet service, processing solid waste, operating toll-roads, running print shops, managing vehicle fleets, dispensing information technology, and vending a plethora of other services. It is estimated government competition accounts for nearly $20 billion dollars annually, the equivalent of three percent of the gross state product. The business of government has disastrous impact on the state economy and all taxpayers.
Testifying before the full Select Committee on Public School Finance, Dr. Vedder outlined the relative merits of revenue options, but also urged legislators to exercise caution in making radical changes to the state's tax system.
The purpose of this report is to explore ways to reduce expenditures for the public school employee health insurance program. The question is whether the $1 billion dollar per year program is a bane in adding to the depth of the budget deficit or a boon in providing clues to reduce expenditures for all of the state’s health insurance programs costing over $10 billion per year.
Texas, like many states across the country, is struggling with fiscal problems. With a budget shortfall that may exceed $10 billion, legislators are making difficult decisions about constraining costs and seeking innovative ways to protect the integrity of programs. Decisions about the Children’s Health Insurance Program (CHIP) pose one of the greatest challenges for the 78th Texas Legislature. Measures taken to control costs during this session will reshape health care for needy children, gauge legislative commitment to sound fiscal policy, and define the state’s commitment to strengthening families.
This informative Guide covers the hottest topics facing the Legislature in concise, easy-to-read form. Presented here is the Tax and Spending section.
October 29, 2002
Taxing Texans: Part 6 Does Bigger Government Help the Poor? By Richard Vedder, Ph.D.
The trend of recent
research clearly shows that high taxation has a negative effect on the growth of personal
income, especially at the margins where the poor reside. There are also a number of studies
showing that high taxes reduce job opportunities and sometimes lead to higher unemployment.
Take it easy and go slow—the Texas system is not in need
of radical reform. What Texas needs instead are moderate changes designed to make the Lone Star
State even more attractive to individuals and businesses.
June 26, 2002
Taxing Texans: Part 4 Education Funding: How Texas Stacks Up By Richard Vedder, Ph.D.
At both the elementary and collegiate levels, Texas devotes a larger percent of its tax revenue to education than the national average – between 9 and 10 percent more.
April 12, 2002
Taxing Texans: Part 3 Growing Population Requires Less Taxation By Richard Vedder, Ph.D.
Low taxes associated with modest-sized government induce greater population growth. Businesses and people want low taxes more than big government, and they vote with their feet by moving to low-tax havens like the Lone Star State. During the 1990s, approximately 1,000 people moved to states without an income tax every day excepting Sundays. That’s more people than fled from East to West Germany during the Cold War?
March 29, 2002
Taxing Texans: Part 2 The Effect of Taxes on Economic Growth By Richard Vedder, Ph.D.
Studies have shown that each one percent tax increase lowers output per worker by about two percent. That finding has been confirmed by state-by-state comparisons between high-tax and low-tax states.
Income taxes act as a significant drag on personal income growth. Real personal income growth was more than twice as high in low- or no-income tax states, compared with the states with the biggest increase in tax burden. Income taxes also have a clear effect on population growth, which helps fuels tax revenue.
The purpose of this review is to identify opportunities to improve the performance of Smith County on behalf of its customers --- the taxpayers. In the course of the review, issues of superior performance are also analyzed with the intention of encouraging replication in similar public agencies. Finally, an opportunity analysis evaluates results both in relation to internally established objectives and externally established public purposes, both implicit and explicit. The underlying question addressed by the opportunity analysis is "how good is the public agency compared to what it could be?"
Texans don't have to raise taxes to obtain better services, or eliminate services to reduce spending. In fact, by harnessing the reins of the private sector, Texans can cut both state and local taxes and have better services: better streets, better libraries, cleaner water, better airports, better police protection, a better environment, better schools.
