This commentary originally appeared in the Austin American-Statesman on May 1, 2017
The debate between the Texas Senate and House over the state’s budget and tax relief is nothing new — but it does point to a potential emerging consensus about the growth of government in Texas.
A quick look at both versions of the state’s upcoming 2018-19 budget make it appear that they are only $400 million apart at around $218 billion in spending. Moreover, both versions are assembled using accounting adjustments to get them to this point.
The Senate assumes it can save $1 billion on Medicaid and delays a transfer of transportation funds. The House assumes about $2.2 billion in Medicaid savings and uses the Rainy Day Fund while delaying a $1.9 billion education payment to push the spending into the next budget period.
After accounting for all of the delays and assumptions, however, the House version commits the state to spending about $2.3 billion more than the Senate version.
While these differences are important and need to be addressed, even more important is the fact that both chambers have constructed budgets that at least on paper keep spending increases to less than population growth plus inflation.
For years, the Texas Legislature has used the taxes collected from our booming economy to increase spending. Little thought has been given to return the surplus to taxpayers. Today, taxpayers are funding a budget that’s up by 11.8 percent more than increases in population growth plus inflation since 2004.
This changed in 2015, when, for the first time in memory, the Legislature kept spending increases below population growth plus inflation — even though funds were available to exceed this mark — and instead used those funds to provide substantial tax relief.
Hoping to maintain the momentum of this new-found support for conservative fiscal policy, the Conservative Texas Budget Coalition last year laid out its Conservative Texas Budget target of $218.5 billion for this session. If the Legislature appropriates no more than this for the 2018-19 budget, it will keep spending increases below population growth plus inflation.
Although they aren’t there yet, the fact that both chambers are paying attention to this mark is something new and exciting. The possibility of the Legislature adopting two consecutive conservative Texas budgets is historic.
While there will be debates about how to handle the delayed transportation fund transfer, the delayed payment to school districts, and the use of the rainy day fund, the most important thing to watch is whether the budget conference committee is willing to stay near the appropriations level of the Senate to keep spending below the Conservative Texas Budget limit of $218.5 billion. Another important issue to track is whether the Senate will go along with the House to keep increased spending in the 2016-17 supplemental appropriations bill below population growth plus inflation.
Regarding tax relief, things are also heading in the right direction.
The onerous, job-killing business franchise tax has kept Texans from fulfilling their full potential for far too long. Our research shows that eliminating the franchise tax liability and associated compliance costs could increase Texas’ personal income by $16 billion and create 130,000 new private sector jobs above the status quo within five years.
The Senate passed SB 17, which would allocate half of the estimated general revenue for an upcoming budget period that exceeds a 5 percent increase to cutting the franchise tax rates each budget period until elimination. The House will soon vote on HB 28, which would use the lesser of either surplus dollars at the end of a fiscal period or $3.5 billion to buy down the margins tax rates until elimination.
Though each of these would provide beneficial permanent franchise tax cuts, the quickest path to abolishing this costly tax is to combine these bills. Based on a static analysis, if these bills were in place since the 2013 session, the franchise tax would have been eliminated during the 2015 session, thereby allowing higher incomes and more jobs than otherwise today.
There’s a lot to do between now and sine die. Passing a conservative Texas budget and putting the franchise tax on a path to elimination should remain at the top of the list. If these both happen, Texas will have taken a historic step toward reining in the growth of government and promoting liberty and prosperity for all.