With the hours ticking away, one is left wondering if anything good can actually come from this special session of the Texas Legislature. If you are a taxpayer, the future is especially bleak.
The legislating class in Austin is committed to significantly increasing the amount of money spent on public education. One has to ask why.
Texas spends more on public education today than was spent on all state government in just 1990. We have tripled per-pupil spending since 1970, on top of inflation and population growth. We currently have one teacher for every one non-teacher in our schools, versus only a few decades ago when the ratio was three teachers to every non-teacher.
What do we have to show for it? Public schools are often the nicest buildings in town. We have multi-million-dollar athletic complexes. The highest-paid Texas superintendent has a five-year contract worth more than $2 million; he’s not even in a “wealthy” district.
And more is going to be spent; all to help the kids.
Of course, no one is talking tax increases. Just the opposite; politicians are falling over themselves to reassure us of impending cuts to our property taxes.
Pleasant rhetoric, just don’t believe it. Government can only get revenue from the people. So if politicians are going to increase spending, new money must come from somewhere. Unless we are willing to cut spending in other areas of state government, that “where” is your pocketbook.
Right now we get mad when we see the property tax bill. We are frustrated when we read the tax line on a receipt at the store.
But under proposals floating around the Senate this week, you’d pay more in taxes without knowing it. Two schemes, in particular, are especially insidious, representing a drain on both your personal finances and the state economy.
One is the business activity tax. It has some theoretical appeal – being broad-based and hard to escape. Under a BAT, a business will pay taxes based on wages, whether the company is making money or not; if they dare to show a profit, they get taxed on that, too.
There is abundant evidence the BAT will produce a net increase in tax burden, and a negative impact on economic growth. Only one state has had a BAT for a sustained period – Michigan – and that state is phasing it out because of the disastrous effects.
The only place where this form of taxation continues en masse is Europe – which has suffered under decades of economic stagnation as a result.
Legislators are also flirting with payroll taxes. Like a BAT, a great deal of money stands to be raised – in the short term – if such a tax is levied. Under this scheme, employers would be required to remit to the state either a percentage of the total compensation paid to employees, or a flat per-person fee depending on circumstances.
Either way, payroll taxes become a cost of production, and become (at least partially) reflected in product prices. They have all the negative effects of an income tax, worsened by the fact they are hidden from consumers and employees.
The governor has stood correctly and firmly, if sometimes alone, against any new tax – including the BAT and payroll taxes – that could hurt Texas’ current competitive advantage in attracting businesses to Texas.
Although many in Austin are attracted to new business taxes as short-term cash-cows, common sense analysis reveals they are economy-killers.
Why? The reason is so simple many overlook it: when an activity is taxed, people generally do less of it. BATs and payroll taxes are taxes on productive activity, a tax on work. If it is too costly to employ someone, why employ them?
The result: less employment and a wrecked economy.
In the short-term, the costs will be hidden. We’ll see prices go up, and have less money at the end of the month. We’ll scratch our heads and wonder why.
When the negative consequences hit the economy, legislators will have spent the money to fulfill questionable promises. Billions will have been drained from our pockets.
We will then be sending our kids to schools still under-performing, where non-teachers outnumber teachers two-to-one, and the buildings are even larger monuments to largesse. Test scores will have remained stagnant, and we will feel something should be done to improve public education.
And a new legislator will propose to cut our taxes and increase spending. Welcome to the future. Bleak, indeed.
Michael Quinn Sullivan is vice president of the Texas Public Policy Foundation.