Analysis: Tax Cuts an Easy Way to Grade State Lawmakers' Work

If you want to watch the story of this legislative session in one nice little package, tax cuts would be a good bet.

The Legislature has plenty of important issues to resolve, some of them probably more important than tax cuts. But as a measure of how things are going, the tax cuts are hard to beat.

Without an accord on taxes, there's no budget. Without a budget, the Legislature will go into a nasty summer overtime session.

Not very many officeholders are against cutting taxes.

The House wants them, the Senate wants them and the governor wants them, but they don't agree on the contents. The House wants to cut three-tenths of a cent from the state sales tax. The Senate wants to give homeowners a bigger homestead exemption from property taxes. Both chambers — and the governor — want to lower the state’s business margins tax, also called the franchise tax.

Their positions have become entrenched. Gov. Greg Abbott started the digging, saying he would veto a budget that does not include a business tax cut. The details are a bit different, but both the House and Senate have his cuts in their budgets.

Lt. Gov. Dan Patrick talked about cutting property taxes during his 2014 campaign for that office and before then, when he was a state senator. The state doesn’t levy a property tax and can’t really lower one, so he and others cooked up a plan that would roughly double the homestead exemption, giving homeowners an average annual cut of about $206.

The House countered with a plan to cut sales taxes enough to give the average Texas household $89.96 annually. Figured another way, the cut would average $40.40 for every adult in the state.

Each side is defending its idea with evangelical fervor, and now Patrick has dug in his heels, saying the Senate won’t send the governor a budget to sign that does not include some kind of property tax reduction.

And because they need to know what numbers to include for tax cuts, the House and Senate negotiators on the state budget won’t be able to finish their work until the differences on tax bills are settled, said Senate Finance Chairwoman Jane Nelson, R-Flower Mound.

“We’ll pass a budget,” she said Thursday. “With both sides feeling so strongly that we need to have some kind of tax relief, that has implications in the budget about which kind or which blend of tax relief. It’s going to involve the budget.”

That word “involve” means a lot. The budget can’t be done until its moving parts are all in place. Tax cuts are one of the biggest debating points of the session, and without that settled, the budget can’t be finished.

It’s the only bill that has to be finished in every legislative session. Other things come up from time to time that must be done, like school finance, prison overcrowding, money for disasters — whatever the emergency of the day might be. But budgets are always there and have to be stitched up before lawmakers can go home.

Things can fall apart pretty quickly if a budget is late. An example: School districts find out from the state budget how much money is coming their way and from there figure out how much they need to supply locally. They write their budgets, set their tax rates and then school starts. It’s fast.

In the Capitol, a place where dire forecasts about the future are a highly refined art form, the spats over taxes and other issues have people talking about special sessions to resolve issues that don’t get done during the current regular session.

Nobody really knows. But the tax tiff makes for a pretty good canary in this coal mine. If lawmakers can settle on a mix and get it done, the budget writers can finish their must-do bill. If they can't, the criticism of state leaders could be ugly.

Other issues could bring lawmakers back for 30-day special sessions, but most of those are discretionary — up to the governor. He can call them back to work on ethics legislation if that doesn’t get done and if Abbott wants it badly enough, but it’s not required. The same goes for other issues on his emergency list, like pre-kindergarten funding.

The budget isn’t discretionary, and its fate is tied to one of the most volatile topics out there. Tax cuts are the thing to watch.