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Texas Business Tax Developments

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By Ben Philpott, KUT News

Austin, TX – The Texas House has given initial approval to a bill that would exempt about 40-thousand small businesses from paying the state's business tax. KUT's Ben Philpott reports eliminating the tax for businesses with less than a million dollars in revenue has been a priority for just about every lawmaker this session.

Lawmakers came into the session wanting to make the change. Governor Rick Perry even mentioned the need for some kind of business tax tweak in his State of the State address in January. So it was no surprise the bill gained initial approval with unanimous support. The only debate came when bill author - Brownsville Democrat Rene Oliveira had to fend off attempts to exempt other business from the tax.

Oliveira: "I don't like putting one business group against another business group. But the reality is we can only do so much. And I think the one-million exemption I've laid out for you does it the right way."

While it may help small business -- Dick Lavine says the tax cut could hurt state public schools. Lavine is with the Center for Public Policy Priorities - a progressive state policy think tank. He's been telling all who will listen that the state is not spending federal stimulus dollars on education correctly. In a nut shell - the feds sent a pot of money and said use this to keep from cutting education - if you don't need to cut education - send the balance straight to the schools as a bonus.

Lavine: "But the appropriations and finance committee have decided to use all that money to help fund the state budget, which is saying we can't do it on our own."

Several people - including Lavine and the Texas Democratic congressional delegation think that's the wrong way to spend the money.

Lavine: "But then they're considering a tax cut - of the franchise tax - that can be used only to fund the foundation school program. Which seems to be giving just the opposite message to the federal government."

There isn't any specific guidance from the federal government on whether or not the stimulus money can be used for tax cuts - mostly because no other state is in the financial position to even offer tax cuts. Lavine already thought the state was playing with fire with its budget strategy - but adding the tax cut just makes it worse. Despite the unanimous support for the bill in the House Monday - there are lawmakers who agree with Lavine. But they think it's more politically dangerous to vote against a tax cut --- then to vote for it - and have the federal government overturn it.