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Texas Budget Woes: Success or Failure?

2 min readBy: Joseph Bishop-Henchman

Columnist Paul Krugman noted earlier this month that Texas is facing a budget shortfall. Evidently not heeding our warning about relying on state budget numbers from the Center on Budget and Policy Priorities, Krugman cited the left-leaning CBPP as the basis for his argument that Texas-style fiscal restraint couldn’t protect the Lone Star State from the recessionA recession is a significant and sustained decline in the economy. Typically, a recession lasts longer than six months, but recovery from a recession can take a few years. :

Right now, triumphant conservatives in Washington are declaring that they can cut taxes and still balance the budget by slashing spending. Yet they haven’t been able to do that even in Texas, which is willing both to impose great pain (by its stinginess on health care) and to shortchange the future (by neglecting education).

Kevin Williamson from National Review has a response that perhaps understates the size of the problem but puts it in a greater context:

Texas’s present situation is not exactly unprecedented. It happens in Texas from time to time: You have a state with no income taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. , property taxes assessed at the local level (where the taxpayers are apt to fire the taxspenders), and very little else, revenue-wise – Texas has one of the lowest tax burdens in the country – which leaves the state sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. and the 1-percent “franchise” tax, which is a fancy way of saying a weird little business-revenue tax on firms with more than $1 million in sales. (Hey, New Jersey: How’d you like to trade your current state-tax burden for a 1-percent business tax and a 6.25 percent sales tax? You get most of the nation’s new jobs in the deal, too.) So, money’s always tight for Lone Star State government, and lots of Texans kind of like it like that.[…] Ergo, the occasional shortfall projection.[…]

[Officials] handled the politics pretty well: Instead of calling state agency chiefs down to the legislature to be dressed down by pompous elected types or denouncing them from the governor’s office, they had a bunch of what must have been drearily tedious private meetings with them, and helped them to sweat their budgets down in a rigorous but respectful way. It worked. Texas balanced the books, and the place does not look like Afghanistan.

Republicans like to brag that they balanced the budget with no tax increases, which is almost true (some fees and such went up, and some new ones were created). The franchise tax, which had originally kicked in at around $300,000 in revenue but had been pushed up to $1 million, is coming back down to a $600,000 threshold. It’s a tax increase, but it’s not much of one. If congressional Republicans in D.C. performed as well as Republicans in Austin, we’d be pinning medals on their chests.

More on Texas here.