Lone Star revenue bill brings grumbles about the `State of Taxes'
Austin, Texas — Texans fond of describing their home as a low-tax state should probably lay the notion to rest. On Tuesday the state Legislature passed a two-year, $5.7 billion tax hike - the largest ever for any state - that gives Texas one of the highest sales taxes in the country. Indeed, some residents of the Lone Star State have joked recently that the vowels in their state's name should be switched to yield ``Taxes.''
But this week's fiscal measure, which covers the state's two-year budget cycle, still puts Texas somewhere in the middle for per-capita state spending.
Even with the tax hike, Texas will still fall below the 1985 state per-capita spending average of $905, according to John Kennedy, senior research associate with the Texas Research League. In 1985 Texas ranked 34th among states for combined state and local spending, and 44th in state spending alone.
The state sales tax will climb from 5 cents on the dollar to 6 cents, which, when combined with local levies, jumps to around 8 cents in the state's major cities. As of January only three states surpassed that level, while four others equaled it.
In addition to extending the sales tax into many new areas, including private club dues, landscaping, janitorial services, data processing, and custom computer software, the bill also increases motor-vehicle sales, cigarette, hotel, and corporate franchise taxes, and makes permanent a temporary gasoline tax passed last year.
Also new this year is an occupation tax of at least $100 a year to be paid by doctors, lawyers, accountants, architects, and other professionals. Texas has no state income tax.
Republican Gov. Bill Clements's acceptance of the new measure angered some Republican lawmakers, who recalled that the governor campaigned last year on a platform of no new taxes.
The tax increases reflect the state's painful shift away from a dependence on the oil and gas industry. From 1971 to 1984 the state had no tax increases, a reflection of ever-growing tax revenues from expanding oil and gas production and the boom those fostered. But Mr. Kennedy says those years, ``when the Legislature could come to town and find a billion-dollar surplus over the year before,'' were an aberration.
Frequent tax increases ``are really more the norm here,'' Kennedy says, noting that more than a dozen tax bills were passed in Texas during the '50s and '60s. ``And I'd say that for the forseeable future [the Legislature] is going to be facing the need to raise revenue every time they come to town,'' he adds.
Kennedy points out that the state's population continues to grow, meaning demand for services, from classrooms and teachers to prison cells and road repair, will increase even while unemployment remains high and the state's overall economy is stagnant.
At $38.3 billion, the two-year budget entails a 4 percent increase in spending: more than the 2 percent increase Governor Clements had advocated, but less than the increases sought by either house of the Legislature.
The budget includes a 10 percent increase in higher education spending, which education advocates say should allow the state to give faculty pay raises to bring them within the national average. Educators had issued reports during the session showing the state suffering a ``brain drain'' of university instructors and researchers as a result of education cuts over the past two years.