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Proposed Franchise Tax in Texas Could Train Workforce of Tomorrow

By Lee Cullum, KERA 90.1 commentator

Dallas, TX – No state has resisted a personal income tax more tenaciously than Texas. It is one of seven never to give in to this tempting stream of revenue. That's been good politics and good business. But how long can we go on in this happy dream without jeopardizing our schools?

The answer is not much longer, unless Texas corporations and partnerships accept major responsibility for training the workforce of tomorrow. The best way for them to do that is through the reformed franchise tax proposed by Representative Dan Branch, a Republican from Dallas.

This would expand a law first applied to the capital base of manufacturing firms. Later service and information companies so outpaced heavy industry that Governor Ann Richards got the legislature to add a 4.5 percent levy on "earned surplus," which really is a tax on net revenue. But don't suppose many pay that. Quite a few create subsidiaries in Delaware to avoid it. In fact, only one out of six businesses antes up any part of the franchise tax.

Close that loophole: there's the common ground on which Governor Rick Perry and Representative Branch seem to stand. But the governor needs to go farther and recognize that the school finance crisis cannot be resolved without full reform that levies the franchise tax on wages paid by all businesses, with exemptions for those that are small. The current rate would be lowered, and so would the property tax, which must be reworked to rid the state of Robin Hood, that unfortunate legislation that requires wealthy districts to send a share of their property-tax revue to Austin for redistribution to poorer districts.

If the property tax is cut 30 percent, that would leave a need for $5 billion in additional funds. If the reduction is 50 percent, the revenue hole could be as much as $8 billion. In addition, $1.5 billion or so must be generated in new money for the schools.

A reformed franchise tax could be expected to raise about $6 billion. That's the indispensable cornerstone. Other levies can be plugged in, such as an increase in the taxes on cigarettes or general sales, but they will not raise the kind of money essential to shifting taxation for the schools from local property, seat of inequities, to the state level.

Governor Perry's plan has been to lower property taxes by 17 percent and replace them with sin taxes. But there may not be enough sin, even in frontier Texas, to cover the shortfall. Comptroller Carole Strayhorn told the Associated Press the governor's program would create $12.1 billion in revenues and more than a $10 billion in deficits over the next five years.

Now Perry is talking about a second special session before the end of August. But there's no mass chorus of amen. Some prefer to wait until after the August trial of a lawsuit challenging the constitutionality of the present system. The Dallas Independent School District and Highland Park are among several plaintiffs charging that the current arrangement is unequal which it certainly is and also illegally involves the state in the local property tax which it probably does.

Whenever the legislature meets, Governor Perry, Lieutenant Governor David Dewhurst and Speaker Tom Craddick must understand that Dan Branch is right. The Holy Grail does lie in the franchise tax. It is their only true, workable option.


Lee Cullum is a contributor to the Dallas Morning News and to KERA. If you have opinions or rebuttals about this commentary, call (214) 740-9338 or email us.