Texas Legislature Considers Tax Increases in Second Special Session

Members of the Texas Legislature have filed two tax bills for consideration in the current second special legislative session.  Both are proposals for how to increase transportation funding in response to Governor Perry’s charge to the Legislature to consider “legislation relating to the funding of transportation infrastructure projects.”  Exactly how much consideration the Legislature will give these proposals remains to be seen, given the other prominent and controversial bills filed this session.  Nevertheless, I’ve summarized the tax bills currently on file for the benefit of those who must forecast changes to the Texas tax laws.

HB 37: Fuel Tax Increase

This bill changes the amount of the Texas fuel tax (gasoline and diesel)  in accordance with the consumer price index.  Currently, the Texas Tax Code sets the gasoline and diesel fuel tax at 20 cents per gallon — the fuel tax rate has remained the same since 1991.  If this bill passes, the fuel tax will increase or decrease each year “by a percentage that is equal to the consumer price index percentage change for the preceding fiscal year.”  The immediate effect of this will be to raise the fuel tax.

Proponents of the bill recognize that while much inflation has occurred since 1991, which has increased roadway construction costs, the gas tax has remained the same.  They also note that vehicles have become more fuel efficient since 1991, further decreasing the amount of fuel tax collected.  Thus, they argue, raising the fuel tax seems logical.  However, with gas prices already high, a tax increase would be politically unpopular.  It may also increase the cost of doing business for many Texas businesses.  Therefore, while raising the gas tax may seem to some like a logical way to increase transportation funding, it seems unlikely that this tax increase will pass.

SJR 5: Constitutional Amendment Increasing Sales and Use Tax

This bill proposes a constitutional amendment to temporarily increase the Texas sales and use tax rate by 0.5 percent.  It also requires that the revenue from this sales and use tax increase must be used to pay off transportation bonds and certain other state obligations.  To pass, two-thirds of both houses of the Texas Legislature must approve the amendment, then a majority of Texas voters must vote to approve the amendment.  If the amendment passes, it would become effective January 1, 2014 and expire September 2, 2015.

Proponents of the bill note that Texas’s sales and use tax rate has not increased since 1990, despite inflation and increase in state population and government services.  However, opponents argue that a sales and use tax increase is inherently regressive, meaning that it will burden lower-earning Texans more than higher-earning Texans.

It seems unlikely that this amendment will become law.  Even if the members of the Texas Legislature take the political risk of passing a tax increase, it’s even less likely that  the people of Texas will willingly vote to increase their taxes.

Conclusion

Despite the current need for increased transportation funding, it seems unlikely that either of these bills will pass.  Members of the Texas Legislature have also proposed other bills in this special session allocating revenue away from other parts of the government to transportation – these seem more likely to pass, but are not permanent solutions to structural spending and revenue issues that have kept available transportation funds low.

I will update the comments section of this blog with news regarding the progress of these bills, if any.