Texas lawmakers looking to cut taxes should control spending first
With a projected $8.9 billion surplus in state revenues over the next two budget years, according to Texas Comptroller Glenn Hegar, Texans are forgiven for thinking it should be easy to cut taxes. This is especially applicable for homeowners’ property tax bills, which have risen precipitously in recent years due to soaring land and home values.
However, cutting taxes — as opposed to restraining the growth in future tax increases or swapping a reduction in property taxes for an increase in the state sales tax — appears to be a nearly insurmountable obstacle. The hurdle is the inherent bias in government to constantly increase spending.
In good and bad times, government is the needy hand always wanting more. If the Texas Constitution did not require a balanced budget, the state would likely be in debt and digging a deeper hole, just like the federal government. Similar to many other state governments, Texas must make do with spending only the revenue on hand in any given year.
Because, as Ronald Reagan put it, “the problem is not that people are taxed too little, the problem is that government spends too much.” Lawmakers need to develop better strategies for restraining government spending before deciding to cut taxes.
For example, Vance Ginn, director of the Center for Economic Prosperity at the Texas Public Policy Foundation (TPPF), as well as other TPPF researchers, have proposed restraining the growth of government spending by tying it to the increase in population in the state plus inflation. If this had been adopted in this latest legislative session, this proposal would allow an 8 percent increase in state spending in Texas over the next two years. They call this proposal the “Conservative Texas Budget,” which is supported by numerous conservative organizations and free-market think tanks.
With this restraint on spending, Texas would be on track to cut property taxes in half by eliminating the school maintenance and operations tax and using other state funds for public schools. Importantly, for job creation and growth, the Conservative Texas Budget would also allow the Texas Legislature to eliminate the so-called “margins tax.” The margins tax is a disguised corporate income tax that reduces capital investment and income growth in Texas.
Although the legislature has passed two budgets in the 21st century that limited spending growth, those were followed by sessions in which legislators spent freely, says Ginn. As a result, writes Ginn, “State spending has increased faster than the pace of population growth and inflation since 2004, at a cost to taxpayers of $14.8 billion this biennium, or almost $1,000 more, on average, for a family of four this year.”
By the end of the 2019 fiscal year, on Aug. 31, Ginn estimates, “Texas’ government will have spent more than $1.4 trillion in the 16 years since the state’s fiscal year 2004.”
In order to enact tax cuts, which would unquestionably be good for the state’s economy, the Texas Legislature needed to apply fiscal restraints to ensure it doesn’t fall back into its old bad habits. Thankfully, the Texas Public Policy Foundation’s budget restraints, as well as other restraints proposed by conservatives in Texas and elsewhere, offer several good ways for Texas lawmakers to ensure they pass budgets that promote growth while also remaining fiscally sound.
The only question is, will Texas lawmakers utilize these important proposals?
Joe Barnett is a research fellow with the Heartland Institute. He writes from Arlington and can be reached at firstname.lastname@example.org.