Perry made a couple of claims that are worth revisiting.
As Perry and host Larry Kudlow were discussing the state’s lack of a personal income tax, Kudlow asked him about taxes on business. Kudlow said, “You do have corporate revenue taxes as far as I know and they have been raised.”
Perry said, “They have not been raised. As a matter of fact, we lowered them in 2006, it was a 4 and a half percent rate on our franchise tax, we moved it down to 1 percent. So I hate to disagree with you there. You know for a fact that Texas is a low-tax state.”
When Perry and the Legislature came up with a new franchise tax in 2006 to offset cuts in school property taxes, sure, the rate lowered. But that rate was assessed on something entirely different under the new tax. The old franchise tax captured 4.5 percent of earned surplus (also known as profit). The new tax captures 1 percent of total revenue minus the cost of goods sold or minus total compensation.
The point of all that was that the Legislature didn’t simply lower the rate of the tax, which is a conclusion one could draw from Perry’s comments.
Perhaps the more significant change in 2006 was that the new franchise tax was applied to many more businesses than the old loophole-ridden franchise tax. Using the projections that were in play at the time, the new tax was created so that businesses would pay, in total, $3.39 billion more per year in franchise taxes, because many businesses had been paying nothing under the old one.
That’s a large number, but it can’t be looked at in a vacuum. Because while franchise taxes went up by $3.39 billion (according to the projections at the time), property taxes on businesses went down $3.04 billion, leaving a relatively small net tax increase on businesses. And here’s the most important piece — it was passed in order to give homeowners an annual property-tax savings of $2.79 billion per year.
Here’s one other statement from Perry’s interview Thursday that’s worth revisiting: He said that in 2006, “we cut our property taxes by one-third.” He then repeated it a few seconds later.
That’s a little too simple a way of putting it. The state cut tax rates on school district operations by one-third, but that didn’t affect other aspects of property-tax bills, such as county and city taxes and taxes levied (with voter approval) to build more schools. And the one-third cut hasn’t fully held up because school districts have had to increase their tax rates to pay for operations. Plus there is the issue of rising appraisals, which Perry said the Legislature needs to address.
The Hutchison campaign put out information last night saying how much state tax collections have increased over the last couple of years. But what the campaign didn’t point out is those state taxes have gone up in order to make possible a larger cut in local property taxes.
I realize it probably seems like we’re a little too fixated on that 2006 special session here at FR World Headquarters. But it’s clear that in this Republican primary, we’re going to continue to return to the question of whether the Legislature cut taxes or raised them in 2006. The overall answer is that, taken on the whole, taxes were cut. It’s why we have a structural deficit. But obviously the debate can be sliced any number of ways.
Wednesday, October 28, 2009
File under "how did I miss this?"
I am not sure how I missed this last week, but Rick went on the Kudlow show to discuss whether or not he was a supply sider... Kudlow took a rather adversarial tack with Rick, and I can't imagine that Rick was happy with the appearance (link).
Kay's peeps saw an opportunity and pounced... Jason Embry ran down their claims...
Kay's peeps didn't pass Jason's comments around, so they were obviously not happy with his analysis. I think the real issue is complicated, but you can make it very simple. Did Rick raise taxes? No. He signed a net tax cut. Did it turn out that way after the local authorities raised appraisals to counteract the property tax cuts? Not really. Did tax watchdog groups support Rick's tax reform? Yes, Grover Norquist of Americans for Tax Reform has repeatedly stated that you can't punish a politician for comprehensive tax reform that includes supposed tax hikes as long as the end result is a net tax cut...
Kay's team is really sticking with the notion that Rick raised taxes, but the record shows that business tax rates went down, the tax base was expanded to include more businesses. Simultaneously there was a property tax cut.
Neither of those things worked out exactly like anyone planned... property taxes went down, but local governments found a way to get their money... meanwhile business taxes did not bring in as much revenue as predicted and the legislature raised the exemption to 1 million dollars anyway...
I think Rick's peeps are walking into a trap by not responding to Kay's claims that he raised taxes substantively... by not responding it is giving Kay the ability to go to people like Larry Kudlow and say that even Rick isn't denying it...
From my estimation Rick and Kay are both good on taxes, both are not as good on sin taxes, and if we are going to pretend that Rick's tax reform was some kind of tax hike then we will never ever ever see serious reform that allows for a "fair tax" or a "flat tax." Why go out on a limb to fight for tax reform when you will just be accused of raising taxes?