The "T' Word
April 19, 2010
After a decade of budget malpractice in Austin, UTEP and all nine school districts in El Paso face massive deficits. Just last week, our office spoke with a superintendent who faces a ten percent deficit that "must be resolved today." At UTEP, many programs are now facing cuts due to lack of support from the state of Texas. And on April 15th, Tea Party protesters did what they do best. Just what happened here?
Written by Senator Eliot Shapleigh, www.shapleigh.org
After a decade of budget malpractice in Austin, UTEP and all nine school districts in El Paso face massive deficits. Just last week, our office spoke with a superintendent who faces a ten percent deficit that "must be resolved today." At UTEP, many programs are now facing cuts due to lack of support from the state of Texas. And on April 15th, Tea Party protesters did what they do best. Just what happened here?
What happened is Grover Norquist. For years, extremists in the Republican Party have dominated Austin. For the extreme wing, even though Texas is 50th in per capita spending overall, the goal is to "to cut government in half in twenty-five years to get it down to the size where we can drown it in the bathtub." That’s the actual quote from Norquist who has come to Austin many times to get lawmakers to sign onto his Taxpayer Protection Pledge "to oppose any and all tax increases." According to Norquist's Americans for Tax Reform web site, Perry, four state senators and 30 House members have signed the pledge. So now, lawmakers in Austin have been buffaloed so much, that few are even willing to talk about the “T” word.
During the 2003 session, when we had a $10 billion deficit, many of us wanted to raise taxes on cigarettes to keep kids in CHIP. In fact, several polls showed that at least 70 percent of Texans wanted to do just that. Rick Perry and big tobacco kept that tax off the table. What happened? Over 230,000 kids were kicked out of CHIP.
Now we have another deficit—and every agency faces massive cuts. Just ask EPISD or EPCC how this works.
Let’s take a look at some history here—so every El Pasoan can understand what happens in Austin. Let’s take a look at taxes and tuition.
The Texas inheritance tax has been on the books since 1917. The inheritance tax in Texas is a “pick up” tax on the federal inheritance tax—i.e., instead of having a distinctly separate inheritance tax, Texas "piggy backs" on the federal inheritance tax. Thus, the tax due to Texas is equal to the federal credit allowed for state inheritance taxes paid. This system takes advantage of the federal credit to reallocate part of the total tax from the federal government to the state.
However, due to federal laws phasing out the federal estate tax, the tax revenue that Texas enjoyed has diminished to the point that it is completely eliminated in 2010. Since 2002, the top tax rate has decreased incrementally from 50 percent, and the exemption amount has increased incrementally from $1 million. In 2009, for example, the rate was 45 percent and the exemption amount was $3.5 million. On January 1, 2010, a "repeal" of the tax began and is a temporary, one-year-only rate of 0 percent. However, on January 1, 2011 the estate tax is scheduled to return at a top rate of 55 percent and the exemption amount is scheduled to drop back down to $1 million.
Due to federal law, then, the amount of estate tax revenue collected in Texas has decreased dramatically in recent years. The chart below shows the tax revenue collected via the inheritance tax over the past eight years, as well as estimates for this year and the next:
| Fiscal Year | Texas Inheritance Tax Actual and Estimated Collections |
| 2002 | $334,190,915 |
| 2003 | 186,844,211 |
| 2004 | 151,131,249 |
| 2005 | 101,674,348 |
| 2006 | 13,360,123 |
| 2007 | 5,291,127 |
| 2008 | 5,580,142 |
| 2009 | 2,004,064 |
| 2010 (CRE) | 0 |
| 2011 (CRE) | 0 |
Other states protected themselves from the immediate and large revenue loss by choosing not to conform to the federal change. They instead decoupled the state inheritance tax from the federal portion and created a stand-alone tax, thus merely retaining a tax that the states already levied.
Decoupling from the federal inheritance tax would have protected Texas against the loss of a steady and sizable revenue stream. Further, doing so in 2011 will protect the state from future federal meddling with the law. Unlike other tax revenue streams, the inheritance tax and other estate taxes are fairly consistent and not subject to the ups and downs of the Texas economy. As Texas is heavily reliant on the varying revenue generated by the regressive sales tax, it is particularly important to protect the revenue streams that are consistent and progressive.
In the 80th Legislative Session, I filed Senate Bill 375, which would have collected the Texas inheritance tax based on the statute that existed prior to the federal phase out that began in 2002. Any revenue collected as a result of S.B. 375 would have been dedicated to fund TEXAS Grants. Based on our conversations with the Comptroller during the 80th Legislative Session, the inheritance tax under S.B. 375 would have provided the following revenue and additional TEXAS Grants:
| Fiscal Year | Gain/(Loss) to the General Revenue Fund |
| 2003 | $117,970,000 |
| 2004 | 116,679,000 |
| 2005 | 175,146,000 |
| 2006 | 272,770,000 |
| Fiscal Year | Additional TEXAS Grants |
| 2003 | 0* |
| 2004 | 47,546 |
| 2005 | 62,799 |
| 2006 | 90,712 |
For your reference, we have charted the increase to academic charges at universities across the state to demonstrate exactly what has happened to tuition and fees. Essentially, tax cuts to millionaires through the elimination of the estate tax were paid with tuition hikes to students.
| University | Fall 2003 | Fall 2008* | Change | Percent Change |
| Prairie View A&M University | $1,854 | $3,412 | $1,558 | 84% |
| Stephen F. Austin State University | $1,735 | $3,270 | $1,535 | 88% |
| Texas A&M University | $2,357 | $4,148 | $1,791 | 76% |
| Texas Southern University | $1,866 | $3,201 | $1,335 | 72% |
| Texas Tech University | $2,525 | $3,570 | $1,045 | 41% |
| The University of Texas at Austin | $2,721 | $4,254 | $1,533 | 56% |
| The University of Texas at Brownsville | $1,490 | $2,718 | $1,228 | 82% |
| The University of Texas at El Paso | $1,837 | $3,048 | $1,211 | 66% |
| The University of Texas at San Antonio | $2,222 | $3,829 | $1,607 | 72% |
| University of Houston | $2,266 | $3,981 | $1,715 | 76% |
Even though thoughtful American entrepreneurs like Warren Buffett and Bill Gates believe the tax is essential to America's future, the inheritance tax is often referred to as the "death tax" by the extreme right wing. So, who actually pays the inheritance tax?
According to the Center on Budget and Policy Priorities (CBPP), very few estates are subject to the estate tax—only the largest 1 in 500 hundred estates pay any tax. In other words, only 0.2 percent of estates pay any estate tax. In fact, current law only taxes anything beyond $3.5 million for an individual or $7 million for a couple.
Come 2011, cuts in Austin are not the only option. Now is the time to speak up.