A Balanced Approach for 2012-13

United Methodist WomenJanuary 24, 2010

Eva Deluna Castro, deluna.castro@cppp.org Dick Lavine, lavine@cppp.org

F. Scott McCown, mccown@cppp.org

www.cppp.org

“Truly I tell you, just as you did it to one of the least of these who are members of my family, you did it to me.”

---Matthew 25: 40

Matthew 25: 31-40 is called the Converting Ordinance by John Wesley in his Journal in 1760:

It is far better “to carry relief to the poor, than to send it” because this is “far more apt to soften our heart, and to make us naturally care for each other.”

Budget Scenario for 2012-13

$0

$25

$50

$75

$100

2002-03 2004-05 2006-07 2008-09 2010-11 2012-13

Local School Tax Cut (GR and PTF)

GR for Higher Ed

ARRA instead of GR

Other GR*

GR for HHS

Other GR for K-12

GR for Prisons

Additional GR Needed

$7 b

$1 b

None

$3 b

$3.3 b

$300 m

$700 m

5% Cuts to GR and GR-D for 2010-11

Of the $87 billion (GR and GR-Dedicated) appropriated for 2010-11, only $41.6 billion is “on the table” for 5% cut proposals to be submitted by state agencies

If 5% proposal cuts were implemented for the entire biennium: $2.1 billion in cuts

Social Security

ERS/TRS Retirement

Higher Ed Fund

Debt Service

Other HHS

TDCJ

All Other

Group Health Insurance

UT Austin

CHIP, Foster Care, Elig. Staff

High Ed Coord Brd

Community/ Jr Colleges

Texas A&M College Station

Medicaid

Foundation School Program

Exempt Areas of Potential Cuts

Major Areas of 5% Cuts for 2010-11, continued

Maximum GR/GRD cut, if implemented for 2010-11

Other HHS (child protective services staff; community care waivers; state schools and hospitals)

$513 million

Texas Department of Criminal Justice $296 million

Public community/junior colleges $93 million

Higher Ed Coordinating Board (mostly financial aid) $77 million

UT Austin $39 million

Texas A&M College Station $36 million

UTMB Galveston $30 million

UT MD Anderson Cancer Center $20 million

Attorney General (mostly child support enforcement) $27 million

Group Health Insurance (for state and higher ed employees, TRS retirees)

$156 million

A Balanced Approach Is Essential for Economic Recovery• Every dollar of state spending generates

$1.41 of economic activity.• 88 cents of that activity is in the private

sector.• Raising taxes reduces economic activity

between 32 cents to $1.02.• Cutting spending hurts the state economy

more than increasing taxes, especially on those with higher incomes.

Best Case ScenarioAssuming revenue growth matches growth in expenses

Current Budget

2012-13 Budget

General Revenue $75.0 billion $75.0 billion

ARRA $6.4 billion $0

Cash on hand $2.4 billion $0

Property Tax Relief Fund carryover

$3.0 billion $0

Permanent School Fund $0 $1.2 billion

Other adjustments $0.2 billion -

TOTAL GR BUDGET $87.0 billion $76.2 billion

GAP $10.8 billion

Funding a Balanced ApproachEasy Money

Potential Revenue for 2012-13

Economic growth with no change in revenue system

$800 million for each 1% growth

Smoke and mirrorsPayment delays, etc

$1.5 billion

Funding a Balanced ApproachSpend the Rainy Day Fund

Potential Revenue for 2012-13 Biennium

Beginning balance $8.2 billion

Growth during 2012-13 $1.4 billion

TOTAL RDF AVAILABLE $9.6 billion

Funding a Balanced ApproachEliminate exemptions

Potential Revenue for 2012-13

Sales tax on business, professional servicesLegal, stock or real estate broker, accounting, management consulting – except health care

$5.6 billion

Eliminate high-cost natural gas exemption

$2.3 billion

Eliminate recognition of optional percentage homestead exemption

$1.0 billion

Funding a Balanced ApproachEliminate exemptions

Potential Revenue for 2012-13

Eliminate Freeport property tax exemption (constitutional)

$850 million

Eliminate 10% property tax appraisal cap (constitutional)

$650 million

Eliminate sales-tax timely filer and prepayment discounts

$425 million

Funding a Balanced ApproachEliminate exemptions

Potential Revenue for 2012-13

Eliminate sales tax holiday $100 million

Eliminate gasoline-tax collection allowance

$100 million

Eliminate CAPCO credits $100 million

Eliminate ineffective tax exemptions

$100 million

Eliminate reimbursement of school taxes for local tax abatements

$20 million

Funding a Balanced Approach Raise Existing Taxes

Potential Revenue for 2012-13

Raise sales tax ½% to 6.75% state/8.75% total, with rebate for families in bottom 20% of income

8 states would have higher state rates

$3.0 billion

Increase franchise tax rate from 1% to 1.25%Retail from 0.5% to 0.625%

$2.1billion

Raise gasoline tax by 5 cents per gallon

From 20 cents to 25 cents – 23 states now at 25 cents or higher

$1.6 billion($400 million to Available School

Fund; $1.2 billion to State Highway Fund)

Funding a Balanced Approach Raise Existing Taxes

Potential Revenue for 2012-13

Raise cigarette tax From $1.41 to $2.00 per pack

15 states now at $2.00 or above

$1.2 billion

Raise motor vehicles sales tax by ½%From 6.25% to 6.75%

$450 million

Raise beer taxFrom 11 cents to 17 cents per six-pack

Last raised in 1984; 15 states would be higher

$100 million

Protecting Working FamiliesFrom Tax Increases

• “Working Families Tax Rebate” Enacted by State of Washington in 2008

• Adds 10% to federal Earned Income Tax Credit

• Available to working families with up to $43,300 annual income (3 or more kids)

• 2.4 million Texan families received EITC in 2007 – 21% of income tax filers

Funding a Balanced Approach New Taxes

Potential Revenue for 2012-13

Quality Assurance Fee 1% on revenues of hospitals, surgery centers

$350 million

Plus federal match of $550 million

Soda tax 1 cent per 12 oz can of sugared soft drink

$145 million

Funding a Balanced Approach Beyond this Session

Potential Revenue for Future Budgets

State personal income tax $14 billion net

(dedicated to education)

Eliminate school property tax abatements - Chap 313

$1.2 billion

Sales tax on Internet sales $550 million

Sales price disclosure $350 million

John Wesley, On Visiting the Sick:One great reason why the rich, in general, have so little sympathy for the poor, is because, they so seldom visit them. Hence it is, that, according to the common observation, one part of the world does not know what the other suffers. Many of them do not know, because they do not care to know: they keep out of the way of knowing it; and then plead their voluntary ignorance as an excuse for their hardness of heart. “Indeed, Sir,” said a person of large substance, I do not know anybody in the world that is in want.” How did this come to pass? Why, he took good care to keep out of their way; and if he fell upon any of them unawares “he passed over on the other side.”

Use of This Presentation

The Center for Public Policy Priorities encourages you to reproduce and distribute these slides, which were developed for use in making public presentations.

If you reproduce these slides, please give appropriate credit to CPPP.

The data presented here may become outdated.

For the most recent information or to sign up for our free E-Mail Updates, visit www.cppp.org.

© CPPP

Center for Public Policy Priorities900 Lydia StreetAustin, TX 78702

P 512/320-0222 F 512/320-0227