Chapter 11

2015 Tax Bracket

10%, 15%, 25% for lower/poverty income 28%, 33%, 35%, 39.6% wealthier (bigger increase in poverty)

Progressive Tax

A progressive tax takes a larger percentage of income from high-income groups than from low-income groups and is based on the concept of ability to pay. A progressive tax system might, for example, tax low-income taxpayers at 10 percent, middle-income taxpayers at 15 percent and high-income taxpayers at 30 percent. In other words, the more you make, the more you pay

The Regressive Tax

A regressive tax is applied equally to everyone whatever their income. Examples of a regressive tax are sales and use taxes. In this form of taxation, the burden falls on lower-income people.

Limit on the Growth of Certain Appropriations

Appropriations can increase no more than the percentage of increase in the state's economy. And, if one goes down, so must the other

Income Tax in Texas

As mentioned, Texas is one of only nine states with no income tax. Supporters argue that the income tax is a more reliable source of revenue for the state and that it can also be made fairer. The key is the difference between a Progressive Income Tax and a Regressive Income Tax. Although there have been calls for the institution of an income tax, few politicians have been willing to support it, since the lack of a state income tax is attractive to businesses. Texas has a state constitutional amendment requiring voter approval for any personal income tax, making it unlikely in the foreseeable future.

Budget-Execution Authority

Between legislative sessions, either the Governor or the Legislative Budget Board can propose cutting off an agency's funds, transfer money from one agency to another, or recommend that the funding of an agency be changed. However, the entity asking must have the approval of the other.

The State Budget

For 2016-2017, the Texas state budget is $209.4 billion. Of all revenue raised, 38.9% comes from the federal government, 24.8% comes from the sales tax, and the remaining 36.3% comes from other assorted taxes, fees, etc. Texas has the 10th highest state sales tax rate in the nation. There is no state property tax. This is prohibited by the state constitution. Property taxes are levied only at the county and local levels. Local taxes are higher in Texas than in other states. But when state and local taxes are taken together, Texas remains a low-tax state. Texas is one of nine states that do not have a personal income tax.

Texas Budget is in Five Categories

General Revenue Funds Budget General Revenue-Dedicated Funds Budget Federal Funds Budget Other Funds Budget All Funds Budget

Revenue In Texas

Government and public policy in Texas are funded from a variety of sources: 1. sales and use tax: The most important revenue resource. The current state sales tax is 6.25%, with allowance for counties, cities, and transit authorities to charge up to an additional 2%. This accounts for about 56% of all state revenue. 2. severance taxes on oil and natural gas produced in the state: currently 4.6% of the total. 3. licensing income 4. interest and dividends 5. federal aid 6. natural gas production tax 7. motor fuels tax (20¢ per gallon) 8. vehicle sales and rentals, and manufactured home sales tax 9. corporate franchise tax 10. tobacco tax ($1.41 per regular 20-pack) 11. alcoholic beverage tax 12. insurance occupation (premium) tax 13. utility tax 14. hotel and motel tax (6%) 15. inheritance tax 16. federal grants and matching funds 17. $17.3 billion settlement with tobacco industry (over 25 years beginning in 1998, then $580 million a year ever after, in perpetuity) 18. other taxes (attorney fee tax, cement tax, Bingo and lottery receipt tax, etc

The Budget Process

In theory, Texas has a "dual-budget" system (the Governor proposes a budget, as does the Legislative Budget Board) but in practice, the budget is the legislature's responsibility. In 1949, a law was enacted to establish a 10-member Legislative Budget Board (LBB) whose primary job would be to recommend appropriations for all agencies of state government. The board is chaired by the Lieutenant Governor

Federal Funds Budget

Includes grants, payments and reimbursements from the federal Government.

Budgetary Process Steps

LBB & Governor issue budget instructions -> Agencies prepare and submit Legislative Appropriations Request (LARs) -> LAR hearings, LBB drafts appropriations bill -> Appropriations bill filed, debated and passed by lawmakers -> Governor signs budget, budget implemented

Welfare Spending Limit

No more 1% of the budget can be spent on welfare or aid to needy children.

Top State Income Tax

None- TX,FL,SD,WY,NV 3%-5.3%- UT, CO, IL, IN, MI, PA, MA 6.25%-11%- OR, CA, WI, NY, CT, NJ, MD

A number of constitutional provisions constrain the legislature's control of the budget, including:

Pay-As-You-Go Limit Welfare Spending Limit Limit on the Growth of Certain Appropriations Budget-Execution Authority Limitation on Debt Payable from the General Revenue Fund (all governed by Constitutional amendments)

Pay-As-You-Go Limit

State Comptroller must certify that funds for various appropriations are actually available. If not, it can't be appropriated.

21st Century Budget Crisis

The 2011 legislative session was a difficult one. First, LBB projections in January 2009 for tax revenues for the 2010-11 biennium underestimated the impact that the recession would have upon tax revenues. Second, Texas had been initially protected from the worst of the recession by an infusion of federal funding.•As property values declined in Texas, so did property tax revenues. This led to a funding crisis at the state and local level, particularly for schools, community colleges, and health districts where funding was based largely on property taxes. In addition, sales tax receipts in Texas were down. At the beginning of the 2011 legislative session, the general revenue shortfall for the coming biennium was projected to be between $24 and $27 billion, so the initial response of state leaders was a call for immediate spending cuts.•On paper at least, the budget deficit was addressed in 2011. But one can only wonder what will happen in 2019-2020 and beyond.

Limitation on Debt Payable from the General Revenue Fund

The legislature cannot authorize additional debt if the debt is greater than 5% of the state's revenue average over the past three years.

The Constitution and The Budget

The legislature is compelled to write a two-year budget because the legislature meets in regular session only once every two years. This restriction forces agencies to project budgetary needs well in advance of any clear understanding of the problems they may have to face. A large portion of the biennial budget is dedicated for special purposes by federal law, the Texas Constitution, or state statute. Dedicated funds include federal monies earmarked for health care for the poor (Medicaid), as well as state funds for highways, education, teachers' retirement, etc.

All Funds Budget

The total state budget. of all of the above, referring to all spending going through agencies, including federal and state programs.

Selected State Funds

There are 400 funds in the state Treasury whose monies are directed to a wide variety of functions. Among the most important funds are: 1. the General Revenue Fund: (see above) 2. the Permanent School Fund: started in 1854, this fund said that profits from the sale of state owned land would be used to fund school districts across the state. 3. the State Highway Fund: money comes from many sources, including vehicle registration fees,federal highway funds, and motor fuel taxes. Over 7% of these funds go to the Texas Department of Transportation. 4. the Economic Stabilization Fund: known as the "Rainy Day Fund," this was created by the legislature in 1988. Half of the unencumbered (unspent) money in the state budget goes to this fund for unanticipated demands (shortfall in education funds, health funds, or retirement funds). 5. the Permanent University Fund: Established in 1876, this money is contributed mainly to schools in the University of Texas (two thirds) and Texas A&M (one third) systems. 6. the Higher Education Fund: Created for colleges and universities not eligible for PUF monies. 7. the National Research University Fund: Established in 2009. Monies from HEF are channeled here to aid universities seeking prominence as research institutions. Originally just UT (Austin) and A&M, seven new additions were made in 2011; Texas Tech, UT Arlington, UT Dallas, UT El Paso, UT San Antonio, University of Houston, and University of North Texas.

Spending in Texas

There are major considerations in budgeting: 1. The state budget deals with huge sums of money (in 2016-2017, $79.6 billion on education alone). 2. Since much of the treasury is earmarked for specific purposes, much money is unavailable for other uses. 3. Federal funds are often dedicated to areas such as health and human services,or education, with conditions. Ex., If the monies are matching funds, the state has to spend state money before the Fed. will match those funds. Thus, to get more federal money, the state must spend more of its own, contrary to politician's desire to spend less and tax less. On many measures, Texas often spends less than other states. Between the 1992-93 and 2012-13, state per capita spending declined by 2.6 percent, but federal per capita spending increased in Texas by 15.4 percent. Of the 50 states, Texas ranks 47th in per capita expenditure ($4,468 vs. the U.S. average of $5,950), 39th in educational spending, 44th in highway spending, 25th in hospital spending, and 44th in welfare spending. At the same time, in 2009, Texas ranked 42nd in federal funds entering the state ($9,164 vs. the national state average of $10,396). In addition, Texas averaged just 126 state employees per every 10,000 in population, versus the national average of 142 (ranking 44th).

General Revenue-Dedicated Funds Budget

This is only for funds dedicated to specific purposes such as State Parks or college operating account

Other Funds Budget

all other funds not included in other methods of financing, such as the State Highways Fund or trust funds.

General Revenue Funds Budget

this non-dedicated revenue account is the state's primary operating fund. This is where most taxes and fees flow. It includes three areas of educational funding: A. Available School Fund B. State Textbook Fund C. Foundation School Fund Funds from this account may be spent directly, or transferred to special funds or accounts.