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December 4, 2003     (512) 463-0300

Joint Committee Examines New Public School Funding Plans

The Joint Select Committee on Public School Finance is exploring how today's Texas Tax structure can be changed to better fund public education in Texas. The state is currently facing lawsuits over school funding and many senators are expecting a special session next year on the issue.

James LeBas from the Comptroller's Office was the first witness, briefing the committee on the current tax structure. He said the simplest thing to do was to raise all taxes across the board until any funding shortage had been covered. He also mentioned a soft drink tax, a value added tax, and a video lottery as possibilities of other proposed revenue sources.

Deputy Comptroller Billy Hamilton and Linda Dickens of Texas Instruments then addressed the Franchise Tax. Hamilton reviewed the history of the tax, saying that it had become "unpredictable and unstable" at one time, but had performed much better in recent years. However, the recent recession had pushed collections to around $1.8 billion from a high of $2.2 billion. In addition, many companies have formed limited partnerships to help them evade the tax entirely. He said that under the current law, two otherwise identical businesses could be taxed differently, depending upon how they were set up on paper.

Dickens said that the Franchise tax was practically "voluntary" in nature as a company could easily restructure to avoid it.

Senator Teel Bivins of Amarillo said that the service sector of the economy was subject to fewer taxes that the traditional manufacturing sectors of the economy. He said "It's clear that the people of Texas do not want a personal income tax", but that "if we continue to have a business tax that is essentially voluntary, we will be pushed in that direction. For that reason, he recommended that businesses in Texas that enjoy protection from liability should pay higher taxes than those that do not benefit those from protections.

Dr. Robert Bland from the University of North Texas and Charles Pulman, from the Coalition of Texas Law Firms, testified next. Bland said that when considering alternative tax systems, there is "no perfect tax", and that the ideal tax structure is diversified and fair, with government relying on a wide range of taxes. Pulman told the committee that based upon the experiences of other states there were good reasons to not extend the sales tax to professional services, since it would hurt Texas service providers which compete regionally or nationally.

A statewide property tax is also on the table. Milton Holloway of Resource Economics, Inc., said that the current unequal tax system favors some businesses while hurting others, but that taxes are not the only reason a business may or may not choose to establish itself in a state. He said a statewide property tax replacing local property taxes would help economic efficiency, but that adding a statewide property tax on top of local taxes would not. John Kennedy from the Texas Taxpayers and Research Association briefed the committee on the history of property taxes in Texas. He said there was no reason for Texas to have "thousands of jurisdictions collecting taxes", and that some districts don't come close to administering it fairly. Attorney Ray Hutchins of Vinson and Elkins said that when a $25,000 home in El Paso is taxed differently than the same home in Austin, the system is unconstitutional.

Dr. Don Fullerton, from the University of Texas at Austin, then testified that the Gross Business Receipts Tax and any Income Tax would affect business. He said that the former could raise nine billion dollars for the state, while at the same rate an Income Tax would raise only a third as much. The reason for this is that the same item could be taxed several times before its final sale to the consumer.

Others scheduled to testify before the committee today were Steve Lankford of Electronic Data Systems, Dick Lavine of the Center for Public Policy Priorities and Bill Allaway of the Texas Taxpayers and Research Association.

The Joint Select Committee on Public School finance is Co-chaired by Senator Florence Shapiro and Representative Kent Grusendorf. Members from the Legislature include Senators Teel Bivins, Eddie Lucio, Steve Ogden, Todd Staples and Leticia Van de Putte as well as Representatives Talmadge Heflin, Fred Hill, Vilma Luna, Ken Marchant and Ron Wilson. Public Members include Carolyn Bacon, Caroline Hoxby, Jack Ladd and Don McAdams. The committee recessed subject to call of the chair. The meeting is scheduled to resume Friday at 9:00 A.M.

Session video and all other webcast recordings can be accessed from the Senate website's audio and video archive pages.

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