A billion short

We first heard about this last month, and now it seems certain: The new business tax will fall well short or revenue projections.

"It's almost certain we're going to come in about a billion dollars below what we estimated," Sen. Steve Ogden, R-Bryan, told the Houston Chronicle after a meeting of the Business Tax Advisory Committee, which he serves. "Because other taxes are running ahead of projections, we're still OK. ... We're not flush, but we'll be OK, I think."

The new business tax was pushed by Gov. Rick Perry and approved by lawmakers in 2006 as part of a package that also lowered local school property tax rates when the state faced a court order to change the public education tax system. The expanded business tax, due this year for the first time based on last year's business activity, will help subsidize the cost of lower school property tax rates.

Ogden's assessment came after the comptroller's office reported that through June, the new tax brought in $4.29 billion. It has been projected to yield $5.9 billion this fiscal year, which ends Aug. 31. Figures won't be final until November because of businesses that filed for extensions.

Dale Craymer, chief economist for the Texas Taxpayers and Research Association and a tax advisory committee member, also has said he thinks it's unlikely the tax will hit its first-year target.

Craymer said better-than-expected yields from other taxes, including oil and natural gas production, could more than make up the difference.

He emphasized Monday that the business tax performance so far "is probably not indicative of how much revenue the tax is ultimately going to generate, just because of first-year transitional issues."

I'm not as sanguine about the future prospects of this tax as Craymer is. For one thing, I fully expect it to be tinkered with to some extent in 2009, possibly quite a bit, as there is a lot of pressure from unhappy small business owners and from legislators on both sides of the aisle. For another, to be off by more than 15% just doesn't inspire confidence. I'll grant that there was probably a learning curve here, but come on. If it was reasonable to expect the possibility of a billion dollars being lost to "first year transitional issues", that should have been made a lot more clear when the thing was being written and debated. I mean hell, would John Sharp agree with that assessment? This was his baby, after all.

Posted by Charles Kuffner on July 22, 2008 to Budget ballyhoo