Rick Perry on Taxes

Last Updated : Dec 13, 2011

Summary

The state of Texas pays for its operations through a state sales tax which is set at 6.25% with an allowance for an additional 2% to be added by the local municipalities.  The state gets between 35% to 45% of its revenue from taxes, 30%-45% from federal funds, and the rest from investments and other sources.

As a state legislator, Rick Perry voted for the largest tax increase in Texas history in 1987. The legislation took the sales tax from from 5 1/4 cents per dollar to 6 cents per dollar, increased corporate franchise taxes, and levied a new $110 annual "occupation tax" on 12 professional groups.

In 2004, Governor Perry opposed the possible creation of a state income tax, calling it a job killer. He stated that restructuring the property tax and bringing in more jobs would solve the state education funding problems and not the creation of an income tax.

Governor Perry strongly supported House Bill 3 in 2006, which was the eventual solution to reforming the franchise tax system. This legislation changed the manner in which business entities are taxed in Texas by (i) broadening the classes of business entities subject to the Texas franchise tax, (ii) replacing the manner of calculating the tax base using taxable capital or earned surplus with a "taxable margin," and (iii) changing the rate applied to the tax base.

The Franchise Tax no longer based on a taxable entity's net taxable capital or net taxable earned surplus, but rather on the taxable entity's "taxable margin." "Taxable margin" was to be calculated by determining a taxable entity's "margin," apportioning the margin to Texas, and then subtracting any permitted deductions. "Margin" is the lesser of (i) 70% of the taxable entity's total revenue on its entire business or (ii) the taxable entity's total revenue on its entire business minus either (a) its cost of goods sold or (b) its compensation. 

The Franchise Tax is calculated by multiplying a taxable entity's taxable margin by the tax rate of 1%, or 0.5% for retailers and wholesalers. No tax is owed if the tax due is less than $1,000 (raised from $100) or if the taxable entity's total revenue from its entire business does not exceed $300,000 (raised from $150,000) subject to adjustment based on changes in the consumer price index. 

In addition to HB3, Governor Perry supported and signed House Bill 1. This legislation stated that school districts can raise the tax rate only 4 cents one time. Beyond that, if local leaders want more money from taxpayers, they have to get voter approval. Even with voter approval, a 6 cent raise was the maximum.

In 2007, Governor Perry responded to a problem that he referred to as appraisal creep. Governor Perry noted that many municipalities were increasing the values of the houses in their districts to increase revenue so that they would not have to increase the tax rate to increase property tax revenue. He made a number of suggestions to prevent the appraisal creep. These suggestions included changing the constitution to lower the residential appraisal cap on city and county taxes from 10% to 5%, doubling the local property tax homestead exemption to $6,000, and allowing local governments the option of conducting an election to enact a half-cent countywide sales tax constitutionally dedicated to property tax reduction.

Governor Perry has signed the Americans for Tax Reform “Taxpayer Protection Pledge.” In signing the pledge, Governor Perry stated that left unchecked, governments too often surrender to the temptation to raise taxes as a way to solve every problem.

Govoernor Perry's 2012 Presidential tax plan consisted of a total makeover of the tax system. He proposed allowing people to move to a flat tax of 20% or stay within the current framework. Under the new system, some deductions such as charitable donations and mortgage exemption would still remain.

  • Allow Individuals to Choose Between Existing Tax Code or New Flat Tax Systemrn
    • 20%
    • Preserve Deductions for Mortgage Interest, Charity, and State/Local Taxes
  • Eliminate Tax on Social Security Benefits
  • No Federal Sales Tax or Value-Added Tax
  • Eliminate Tax on Qualified Dividends and Long-Term Capital Gains
  • Eliminate the Death Tax
  • Eliminate Corporate Loopholes and Special-Interest Tax Breaks
  • Reduce Corporate Income Tax Rate to 20% to Enhance American Competitiveness
  • Enhance American Competitiveness by Transitioning to a Territorial Tax System
  • Allow Locked-Up Overseas Capital to be Brought Back to the U.S. at a Reduced Tax Rate

 

State Income from Taxes

The state of Texas receives it's revenue from a number of taxes. These include a sales tax, hotel tax, gas tax, and others. The state gets between 35% to 45% of its revenue from taxes, 30%-45% from federal funds, and the rest from investments and other sources.

 

1987 Tax Increase

In July of 1987 Rick Perry was serving as a Democrat in the Texas State Legislature when they passed what the Texas Taxpayers and Research Association called the largest tax increase ever passed in modern Texas. The bill raised the state sales tax from 5 1/4 cents per dollar to 6 cents per dollar, increased corporate franchise taxes, and levied a new $110 annual "occupation tax" on 12 professional groups.

The bill was supported by a majority of Republicans in the Legislature and opposed by most Democrats. It passed 78-70 with 56 Republicans voting in favor. Perry, a Democrat at the time, voted in favor of the tax increase. 

 

State Income Tax is a Job Killer

In May of 2004, Governor Perry warned against the possibility of using a state income tax to shore up funding for Texas schools. He stated that such a provision would be a job killer for the state.

 

Property Taxes and Education Funding

Throughout early 2004, Governor Perry and the state legislature dealt with budget issues in attempts to fund education appropriately while not increasing the state sales tax or instituting an income tax. Governor Perry proposed a four part plan to ensure that local municipalities did not overtax through property taxes. This included limiting the amount a the property tax could increased to 3% instead of 10%, limiting the amount of revenue local entities can raise from property taxes to the amount raised the previous year plus an inflation and population growth factor, and establishing appraisal district boards. He spoke about this plan in Houston, and Dallas and noted that a phenomenon known as appraisal creep was being used as a backdoor tax by increasing the values of home to increase the property tax.

 

2006 - HB3

On May 18, 2006 Governor Rick Perry signed HB3 into law. The legislation change the manner in which business entities are taxed in Texas by (i) broadening the classes of business entities subject to the Texas franchise tax, (ii) replacing the manner of calculating the tax base using taxable capital or earned surplus with a "taxable margin," and (iii) changing the rate applied to the tax base.

The Franchise Tax is no longer based on a taxable entity's net taxable capital or net taxable earned surplus, but rather on the taxable entity's "taxable margin." "Taxable margin" is calculated by determining a taxable entity's "margin," apportioning the margin to Texas, and then subtracting any permitted deductions. "Margin" is the lesser of (i) 70% of the taxable entity's total revenue on its entire business or (ii) the taxable entity's total revenue on its entire business minus either (a) its cost of goods sold or (b) its compensation. The election to subtract cost of goods sold or compensation is made by the taxable entity on its Franchise Tax report, and the election is valid for that report only. This approach allows the taxable entity to select the method that will produce a lower Franchise Tax liability.

The Franchise Tax is calculated by multiplying a taxable entity's taxable margin by the tax rate of 1%, or 0.5% for retailers and wholesalers. No tax is owed if the tax due is less than $1,000 (raised from $100) or if the taxable entity's total revenue from its entire business does not exceed $300,000 (raised from $150,000) subject to adjustment based on changes in the consumer price index.

Any increase in the tax rates must be approved by the voters in a referendum held specifically on the issue of raising the tax rates. The Legislature may decrease a tax rate without voter approval. However, any increase in the rate thereafter—even a return to the original rate—must be approved by the voters in a referendum. Governor Perry released a press statement noting the legislation.

 

2006 - HB1

On May 31, 2006 Governor Perry signed HB1 into law. There were two main taxpayer provisions in the legislation. The first was that School districts could only raise the tax rate 4 cents one time. Beyond that, if local leaders want more money from taxpayers, they have to get voter approval. Previously, local school boards could raise tax rates by 6 cents every year without giving voters any say at the ballot box.

The second provision stated that if appraisal creep yields more revenue than voters have authorized, school districts must automatically seek voter approval to keep it. Governor Perry stated that he supported a lowering of the cap on appraisal increases, but the provision instead capped the amount of money school districts can receive from higher appraisals without a vote of the people. Governor Perry released a press statement after signing the law, calling it the largest tax cut in Texas history.

 

Appraisal Creep

Many districts in Texas were increasing their property tax revenues by increasing the value of the homes instead of increasing the tax rates. Governor Perry refers to this as appraisal creep. Governor Perry appointed a Task Force on Appraisal Reform which recommended five statutory changes and two constitutional changes which Perry supported.

  • Require voter approval for any local taxing entity (excluding schools) to charge or collect revenues from ad valorem taxes in excess of the approved prior year’s budgeted tax revenue plus 5%.
  • Improve fairness and consistency in the appraisal process. Appraisal boards would be comprised of five members, including two taxpayer representatives, and taxpayers would have new options in challenging property valuations.
  • Change the comptroller’s property valuation study, which is used to equitably distribute state funding to schools, as well as provide uniformity in local property appraisal practices.
  • Prohibit the state from passing unfunded mandates to local governments in the future.
  • Require sales price disclosure.
  • Change the constitution to allow taxpayers the option of calculating their property taxes using a 5-year rolling average of the property’s appraised value.
  • Change the constitution to lower the residential appraisal cap on city and county taxes from 10% to 5%, double the local property tax homestead exemption to $6,000 and allow local governments the option of conducting an election to enact a half-cent countywide sales tax constitutionally dedicated to property tax reduction. The appraisal cap could be lowered to five percent only in counties that vote for a half-cent countywide sales tax increase.

 

Call for Constitutional Amendments

In January of 2010, Governor Perry issued a press statement noting his desire to see two amendments made to the Texas Constitution. The first would require a 2/3 majority in the state legislature to raise taxes. The second would require the Legislature to ensure spending growth does not exceed the combined growth rates of inflation and our population here in Texas.

 

Discussion on Taxes

 

Common Sense Debate - Property Taxes

In the Common Sense debate, Governor Perry states that he supports a national sales tax that replaces the income tax, but opposes replaces property taxes with a higher state sales tax.

 

No Tax Pledge

 

Texas Taxes

The state of Texas does not have an income tax. The state pays for it's operations using an income tax and to a much lesser extent, a franchise tax. The property tax is a local item that is dealt with at the county or municipal level. The state’s current sales tax rate is 6.25 percent and is imposed on all retail sales, leases and rentals of goods purchased in the state, and taxable services. Each local district is allowed to add up to 2 cents per dollar for local costs. This makes the total payable sales tax throughout the state %8.25. There are a handful of goods and services exempt from taxation, including food for home consumption, over the counter medicine, and legal and medical services.

During the 2008-09 biennium, Texas changed the method by which state franchise taxes were collected. Through 2008, the franchise tax was collected on the basis of the amount of capital and earned surplus from a business. Starting in 2009, franchise taxes were collected on the basis of taxable margin. The franchise tax is a levy on doing business in the state of Texas. Businesses that earn more than the threshold of revenue set by the Texas Legislature are required to pay a one percent tax on the smallest value of either: 70 percent of total revenue, total revenue minus cost of goods sold, or total revenue minus total compensation plus benefits. The current threshold is $1 million for 2010 and 2011, and $600,000 thereafter. (Text taken from source)

  

The Western Debate

In October of 2011, Governor Perry participated in the Western Debate in Las Vegas. He spoke about his opposition to Herman Cain's 9-9-9 plan and Governor Romney's plan.

 

Michigan Economic Debate

In November of 2011, Governor Perry participated in the Michigan economic debate. While speaking about the economy, he discussed his tax plan and his support for a flatter tax and a fair tax.

 

Campaign Website Statements

 

 

 

2012 Tax Plan

 

References

[1] Website: Texas Tribune Article: Rick Perry: The Democrat Years Author: Jay Root Accessed on: 07/20/2011

[2] Website: Houston Chronicle Article: Clements signs record increase in state taxes Author: ANNE MARIE KILDAY, R.G. RATCLIFFE Accessed on: 07/20/2011

[3] Website: Condon, Thornton, Harrell, Malik LLC Article: The "New" Texas Franchise Tax: A Summary of HB 3 Author: Kal Malik Accessed on: 07/21/2011

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