Does it make any sense for a business to have to pay a tax on revenue, even when it loses money?  Does it make any sense for our state government to run massive surpluses and keep those tax dollars?  These are two seemingly straightforward questions that should prompt obvious answers, and yet current policy in Texas should offend all taxpayers.

In 2003, other common-sense legislators and I were confronted with a staggeringly high budget deficit of $10 billion.  We had two options: raise your taxes or cut spending.  With a Republican majority in the Texas House for the first time in over 130 years, there were enough of us to stand our ground and balance the budget by digging into the spending side of the budget equation. 

It was a modern-day political miracle, and state governments around the country envied our fiscal accomplishment.  At the time, House Appropriations Chairman Talmadge Heflin famously observed that we had only scraped the surface and that spending could be further reduced—all it would take is the energy and desire to do the work.

Unfortunately, in the very next legislative session in 2005, there was too little energy and not enough desire to be found, so instead of continued reductions in inefficient spending, the budget actually increased by a whopping 19%.  Only a handful of House Republicans and I voted against that budget.  We did so because we believed such a huge increase in spending, after achieving such significant fiscal success two years earlier, was exactly the wrong message, wrong policy, and wrong direction for Texas.

As predictably as night follows day, the 2006 special session presented a proposal that, in government, is the natural and unavoidable consequence of excessive spending—more taxes.  Although it was touted as a replacement for the reduction in property-tax rates, the new “gross-margins” tax passed in 2006 will surely prove to be much more significant—and detrimental—than that. Payment is due for the first time from Texas businesses in June. 

As homeowners already know all too well, the promised property-tax relief has been swallowed up by continuing increases in appraisal values, as well as rate-increase elections held by school districts across the state.  So, as in every other “trade” promised by government, the relief has been fleeting if not altogether non-existent, while the burden of the new business tax is now with us, presumably for good.

Small businesses throughout Texas are being hammered by this new tax.  One of the long-time, thriving businesses in Northeast Dallas—Herb’s Paint and Body Shop—saw its tax liability explode from $31,000 to $107,000.  Herb’s owner Alan Walne stated: “Even after allowing for a nominal reduction in my property taxes, this more than doubles my business taxes, and makes it less likely I will hire new workers, buy new equipment, or expand our operations.”

But not only is this “heads they win, tails you lose” proposition already offensive, the new tax that the legislature passed in 2006 is even more objectionable because businesses have to pay it, even if they lose money.  Texas has taken great strides to create the vibrant economy that we currently enjoy and that is insulating us against the full brunt of the slow-down being experienced in the rest of the country.  But now, with the new gross-margins tax, the message we are sending businesses is that— first, we want you to pay to do business in Texas; and second, we want you to pay even when times are tough and you’re losing money.  That’s a page right out of the Soviet Union’s Chamber of Commerce handbook. 

After accomplishing so much, in one fell swoop, the future growth of our small businesses has been put in jeopardy by the new business tax – likely meaning fewer jobs, less income, and a less robust economy for Texas.

But wait—in case you haven’t been sufficiently offended, these bad policy decisions are being made in the face of repeated record budget surpluses.  Speaker Tom Craddick recently stated that he expects a surplus in 2008 of almost $15 billion; and that follows a surplus of $14.3 billion in 2007.  In my dictionary of plain talk, a budget surplus in government means that government has too much of the taxpayers’ money.  When government has too much of our money, the only acceptable action is to give it back.

Texans are dealing with unprecedented gas prices, food prices, utility prices, and more.  Does it make sense to impose a new tax on Texas businesses?  Does it make sense to extract a tax even when a business loses money?  Does it make sense to do any of this when the state is receiving record surplus revenue? 

One appealing feature of good, ol’ Texas common sense is that we all know the right answer to those questions— even without having to say it.

Bill Keffer is the Republican candidate for State Representative House District 107

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