Rick Perry, Texas, and Taxes
Texas Governor Rick Perry, the latest entrant in the GOP presidential sweepstakes, swaggers into the race as the very personification of a low-tax, small-government, Lone Star politician. But his record on taxes over more than two decades as a legislator and governor turns out to be much more complicated (dare I say nuanced) than that. It suggests, in fact, a politician who has gradually toughened his anti-tax views over the years but remains willing to boost some levies.
Back in 1987, when Perry was a young legislator (and a Democrat) he voted for a $5.7 billion tax hike proposed by GOP governor Bill Clements. Even after Perry succeeded George W. Bush as governor in late 2000, he was not averse to raising some taxes, often while cutting others. In 2001, for example, he signed bills that raised the sales tax on fireworks and even signed an air pollution tax on the purchase or rental of diesel equipment.
In 2002, according to a nice summary of his tax record by Karen Setze of State Tax Notes (subscription only), while Perry’s Democratic opponent pledged to never raise taxes, Perry refused to make such a promise.
Perry’s biggest revenue challenge came in 2004-2006. Texas had been funding its schools through local property taxes, an arrangement courts found problematic. In 2004, Perry proposed replacing some school property levies with a basket of other taxes, including sales taxes, a higher cigarette tax, and an increased payroll tax.
Perry’s plan died in the legislature in 2004 but in 2006, after the state Supreme Court determined the school funding system was unconstitutional, lawmakers did pass a major tax reform bill—a measure praised and signed by Perry. This version reduced local property taxes but created a new gross receipts tax on business (called a margins tax), raised the cigarette tax, and even taxed patrons of topless bars. Thanks to my Tax Policy Center colleague Yuri Shadunsky for helping review the Perry years.
Conservatives blasted the 2006 deal as “the largest tax increase in state history.” While it remains unclear whether this new mix of taxes was a net revenue increase, many in Texas did pay higher taxes.
In recent years, Perry has taken a much harder line on revenues but not an absolute one. While in 2009 he signed Grover Norquist’s anti-tax pledge (to “oppose and veto any and all efforts to increase taxes”), he also increased taxes on smokeless tobacco by $105 million over two years. In June, Perry vetoed a bill that would have required some Internet retailers to collect Texas sales taxes.
While state taxes are generally regressive, Texas is among the worst– not surprising since it has no personal income tax. In 2009, the labor-funded Institute on Taxation and Economic Policy estimated that the lowest-earning 20 percent of Texas households paid about 12.2 percent of their income in state and local taxes, while the top 1 percent paid only 3.3 percent, compared to the national average of 10.9 percent and 5.2 percent .
There are a couple of things to keep in mind when reviewing Texas taxes. The first is that the state has an extremely weak governor, one of the least powerful in the nation. Thus, many of these tax changes can properly be laid at the feet of the legislature, although Perry did sign them into law.
It is also worth noting that Texas has enjoyed the benefits of the run-up in oil prices in recent years (the price of a barrel of oil was just $25 when Perry first became governor). High energy prices may be bad for most state economies, but not for Texas, where the oil and gas business produced $13 billion in state revenues last year, more than 40 percent of total revenues. Texas also receives an outsized amount of money from the federal government and has embarked on major spending cuts. In this environment, Perry has been under much less pressure to raise taxes than other governors.
Bottom line: While Perry is no fan of taxes, neither has he been an absolute opponent of all tax increases all the time.
While Perry did veto the online sales tax bill in June, he did sign a revised version in late July. This measure requires online sellers such as Amazon to collect state sales taxes, but only if they own more than 50 percent of an in-state physical facility. With that caveat, it is unlikely that Texas will collect any new sales tax revenue, but thanks to reader David Siegel for the update.
Also, I identified the Institute on Taxes and Economic Policy as “labor-funded.” The folks there point out that while ITEP’s sister organization, Citizens for Tax Justice, is funded in part by labor, ITEP is not.