Senator Eliot Shapleigh - El Paso, Texas

Sen. Eliot Shapleigh

A border lawmaker has warned that unanimous support among Senate colleagues for a school finance blueprint could count for nothing when major businesses start lobbying the Capitol.

Last week, all 31 senators signed on to proposals for a statewide property tax and a business income tax. But Sen. Eliot Shapleigh (D-El Paso) fears the business income tax component will be gutted in the Texas House and replaced by an increase in the sales tax.

Shapleigh has written to Lt. Gov. David Dewhurst warning against increasing the sales tax because it is the most regressive option under consideration. He said any increase in the sales tax would hurt the border area and Mexicano families hardest of all.

"I fear the business income tax is going to run into stiff opposition, with major employers rushing to Austin to try to kill it. Others, in the real estate industry, will get rid of the real estate transfer tax proposal," Shapleigh said.

"At the end of the day radical leaders in Austin will look to the sales tax. I believe the House will eliminate revenue raised by the reformed franchise tax by increasing the sales tax rate even further."

Texas currently raises 57 percent of state revenue from the sales tax. At 8.25 percent, the combined state and local sales tax rate is third highest among large states. When combined with the property tax, Texas' tax system is the fifth most regressive tax system in the nation.

Shapleigh believes that as with tuition and toll road fee increases, an increase in the sales tax will place the greatest burden on working- and low-income families.

"When Texas chooses to be dead last on what it raises and spends, Texans can expect services to be dead last. That is why we are 50th in country in graduation rates," Shapleigh said.

"The biggest damage is done to border and Mexicano communities because recent immigrants, second and third generation, working families, are bearing an enormous tax load and receiving very few quality programs for their tax dollars."

In his Jan. 12 letter to Dewhurst, Shapleigh included a bar graph from the Comptroller that shows the regressive nature of the sales tax. Texas families earning less than $26,816 per year see 4.2 percent of their earnings go to the state sales tax. For those earning between $52,844 and $81,990, the figure drops to 1.8 percent, and for those earning more than $126,345, the amount is only 1.1 percent.

Shapleigh reminded Dewhurst what happened with House Bill 1 during last year's special session on school finance. Every time a potential revenue source was eliminated, House leaders would propose an increase in the sales tax. Shapleigh said the Legislature should be in the business of ensuring great schools and a fair, balanced tax system.

"Fairness requires that significant potential sources of revenue, such as income, should not be insulated from the state's tax collections and that taxes on individuals should consider important factors, such as ability to pay," Shapleigh said, in his letter to Dewhurst.

"If the mantra is that income tax is off the table of possible solutions, then based on these principles of fairness, any attempt to increase the sales tax should also be off the table."

In an interview with Latino media reporters Thursday, Shapleigh contrasted the fact that a state income tax is deductible from federal income tax while tuition fees, toll road fees, traffic fines, cigarette and alcohol taxes are not. "All of these hit families in different ways," Shapleigh said. "Why not use the system that 43 states have used for decades, where you pay for good schools, you have a long term, stable, funding source and you deduct."

Shapleigh said there was a misconception along the border that the sales tax was virtuous because Mexican shoppers contributed to revenues collected by local government. "There's a misconception, and it has been put there on purpose by those trying to kill the income tax," Shapleigh said. "They say use the sales tax because it's a fair tax and Mexican shoppers pay it and they will support your border economy. Nothing can be further from the truth. It is anything but fair."

Shapleigh said things would change when working families realize that Texas does not have a balanced tax system but a "smoke and mirrors patchwork tax system," that passes costs on to counties and cities. "When we cut programs like CHIP and make emergency rooms handle the load, Texans need to take a look at this tax system and say Ya Basta," Shapleigh said.

Shapleigh said he would be sharing his ideas for a fairer tax reform with 200 leaders from the Methodist Healthcare Ministries in Austin next week. He said he hoped they would take those ideas back to their congregations.

Under the school finance blueprint all 31 senators signed last Wednesday, a business income or franchise tax would apply to all businesses except sole proprietors. Loopholes in the current franchise tax would be closed, but the $150,000 threshold would remain. Senators want the current rate reduced by half a percent.