No one envies the job currently facing policy-makers at every level of government and education in the difficult task of solving the current budget imbalances. As in all such crises, the essential trade-of is about whether revenue is too low or expenses too high. Pretty basic stuff with some obvious answers for businesses and families, but governments often get confused about where to start. At the state level, there are those legislators and agency heads who immediately want to introduce new or enhanced revenue sources, i.e., taxes and fees, but Gov. Rick Perry has his priorities in good working order by refusing to talk about new funding until spending has been appropriately reduced: “Once you take your eye off of spending matters and talk about revenues, there seems to be a historical pattern of people losing their resolve to pare the budget down to where it needs to be.” It could be that he remembers the difficulties of his predecessor in the legislative session of 1997, when state revenue restructuring took precedence over expense reduction, with the result that the process spun out of control in the House, forcing Senate Republicans, with the support of the Texas Association of Business, to step in to stop potentially disastrous legislation from reaching the Governor’s desk.
Look no further than California for an example of what can happen when spending wish lists trump fiscal responsibility—a $35 billion budget deficit primarily created by a 14% increase in government employment during the period 1997-2001 compared to a 6% population increase over the same period, and a highly progressive tax system that penalizes capital formation and job creation. And Gov. Gray Davis, true to his pedigree, feels that the solution is yet another income tax rate increase for upper income taxpayers!
There is no doubt that Texas has an ill-structured, early 20th century tax system that relies too heavily on capital intensive sources, i.e., real property, plant, and equipment, and is in dire need of transformation to the service- and knowledge-based economy we have become. But the priority should be to restructure spending patterns before arranging their financing, because it is the nature of government and its undisciplined constituencies to spend all available revenues, then ask for more.
