Tax Policy and the Race for the Governor’s Mansion: Texas Edition

Voters in 36 states will be choosing governors this November. Over the next several months, the Tax Justice Blog will be highlighting 2014 gubernatorial races where taxes are proving to be a key issue. Today’s post is about the race for Governor in Texas.

Texans will choose a new governor this November. State Attorney General Greg Abbott (R) will face state Senator Wendy Davis (D-Fort Worth). So far, taxes have played a minor role in the campaign, taking a back seat to social issues such as abortion, education funding, and veterans.

Abbott is widely seen as Perry’s heir apparent, and promises to maintain Texas’s low-tax, low-service model of government. In July, Abbott proposed an exemption from the business franchise tax and business registration fees for veteran-owned companies in their first five years of operation. The proposal is designed to encourage veteran entrepreneurship. Abbott also proposed an optional commercial property tax cut – to be applied by local jurisdictions – for businesses that hire veterans, where the business owner would receive a $15,000 reduction in the assessed taxable value of their property for every veteran hired.

At a recent campaign event, Abbott raised the idea of repealing the business franchise tax altogether, saying “Texas is known as having no income tax. Think how many more jobs we could attract to Texas if we also had no business franchise tax.” Texas lawmakers created the franchise tax in 2006 to help pay for a cut in property taxes, though there have been many efforts to reform or kill it since. Currently, the tax exempts all businesses with less than $1 million in revenue each year, and accounted for 4.8 percent of state revenues in 2013.

Davis has insisted that new taxes are not needed, and that the state can better spend the money it already collects; she says she would ask the state legislature to close some of the over $43 billion in tax loopholes to fund needed improvements in education and other areas. In an interview with the Texas Tribune last year, she vowed to veto any increase in sales or property taxes; Texas is one of nine states that does not levy a personal income tax. 

Texas voters will also decide on a proposed constitutional amendment this Fall that could change the way the state funds its roads. Proposition 1 would amend the state constitution to divert 37.5 percent of the severance tax on gas and oil extraction to the State Highway Fund. The move would add $1.7 billion in road funding in the first year alone. Both Davis and Abbott are on record as supporting the proposition. A better solution would be raising the state gas tax, something Texas has not done in over 22 years. 

One statewide race where taxes have played a bigger role is the campaign for state comptroller, where a proposal to replace property taxes with sales taxes has drawn attention. State Senator Glenn Hegar (R) supports the proposal, while businessman Mike Collier has slammed the idea as a massive, regressive tax increase. If the proposal is passed, poor school districts may end up looking wealthier on paper because of their stronger sales tax bases, affecting the distribution of state and local education funding.