DALLAS — Texas cannot resolve its $23 billion revenue shortfall without a revision to an underperforming business tax, Senate Finance Committee chairman Steve Ogden said Tuesday.
“When you have a system where you have statute after statute that forces you to spend more and more money, and then you enact statutes that require you to collect less and less in taxes, you’ve got a system that’s fundamentally unstable,” Ogden said.
“Sooner or later, you’re going to have to fix it,” he said. “I would suggest we start soon.”
Ogden, Republican, attributed most of the structural deficit to the failure of the business franchise tax approved by the Legislature in 2006 as part of a school finance reform package.
The revised state tax was to replace revenue lost by local school districts due to a legislative reduction in property tax rates. The problem is that the business tax brings in $10 billion less over the two-year budget cycle than the taxes it replaced.
The business tax was expected to bring in $6 billion a year, down from the $8.5 billion generated each year by the earlier tax structure. However, collections totaled only $4.5 billion in fiscal 2008, $4.3 billion in 2009, and $3.8 billion in 2010.
Ogden’s panel is considering the $164.5 billion, two-year budget bill passed by the House on April 3. HB 1 cuts total spending by $23 billion, and underfunds public education by $7.8 billion based on current formulas.
The failure to fund public education at mandated levels in the fiscal 2012-2013 budget is just asking for trouble later, Ogden said.
“All we’ve done is we’ve postponed and delayed and deferred our obligations into the next biennium,” he said. “Just keep doing that with the current budget and look at the car wreck you’re going to have in 2013.”
Passing a balanced budget will not solve the fundamental problem, Ogden said.
“Any budget that we pass, even the budget that the House passed, has a large structural deficit that we have failed to address,” he said. “As government officials, we’re failing in our duty to the public.”
One solution, Ogden said, might be a Senate-initiated constitutional amendment to allow a state business tax on profits rather than receipts. Texas has a constitutional prohibition against an income tax on individuals or businesses.
Changing the Texas constitution would require a statewide vote.
Ogden said there was time enough remaining in the 140-day session to restructure the business tax, but House Speaker Joe Straus, R-San Antonio, said time is running out. The regular session is set to end May 30.
“It’s not something you want to do hastily,” Straus said. He suggested the issue be studied by a joint committee after the Legislature adjourns.
Lieut. Gov. David Dewhurst said he was not convinced that revisions to the business tax should be considered during the current session.
“We will grow out of the structural shortfall over time,” he said. “If we don’t tweak that tax, then it’s going to take a little longer. If we do, then it will be shorter.”