Today, millions of people across Texas and the nation finalized and mailed off their 2011 federal income tax return. For most, this process is about as enjoyable as getting a root canal, but it is the cost of maintaining a civilized society. Investing in our nation is a shared sacrifice we make for the greater good, but as the burden of funding government falls more and more onto the shoulders of ordinary working Americans, there is a growing sense that the system – at all levels – is unfair and broken.
In the 1950s, more than 55 percent of all federal taxes paid came from businesses and less than 45 percent came from individuals. Today, that is reversed, and the disparity is widening, increasing the feeling that folks working hard and playing by the rules are paying more, while the wealthiest and big corporations are not paying their fair share.
The sad truth is that perks, tax breaks and loopholes for the wealthy have perverted our tax system and made it blatantly unfair for most average Americans. For instance, in 2010, General Electric – with profits of more than $14.2 billion – paid not a single penny in taxes, thanks to loopholes in the tax code. In fact, GE actually got a $3.2 billion tax benefit, and they weren’t alone. A 2008 Government Accountability Office study found that 55 percent of United States companies paid zero federal income taxes during at least one year of the seven-year period it studied. Another recent study showed that 26 major corporations – like Verizon, Mattel and Boeing – paid no federal income tax over the last four years.
Unfortunately, Texas is no different, as our tax code is riddled with tax breaks, giveaways and loopholes that were put in place years ago by special interests and have never been reviewed. It is such a problem that, despite repeated requests to numerous agencies, no one at the state level could tell me how much we lose in tax breaks and targeted incentives because no one even knows how many are in the code, how much they cost, or if they are even working. What little we do know, however, is startling.
Texas gave retailers a tax break of more than $200 million in 2010 simply to file their sales taxes on time. Enormous and very profitable national corporations owe hundreds of millions in state sales taxes, but use a loophole to avoid paying. The 2012-13 budget, while cutting funding for our public schools and nursing homes, even included $32 million to subsidize Hollywood movies.
The “high cost” natural gas loophole is particularly wasteful. This tax incentive was created in 1989 to help companies with the costs of drilling high-cost wells. Now, however, virtually every new well produced is a “high-cost” well, meaning all new drilling receives an incentive to do what they are already going to do. As a result, Texas gave away more than $7.4 billion in tax breaks from 2004 to 2009, and from new drills established in 2009 alone, we will lose another $7.9 billion over the next decade. Mom and pop producers are not the ones getting this tax break. Instead, it’s international companies with billions of dollars in profits that use this out-of-date loophole to pad their bottom lines with millions of dollars that should have gone to support our public schools and avoid teacher layoffs.
That’s not smart and it’s not fair. Texas can do better.
We need accountability measures, checks and balances on corporate welfare and tax giveaways just like every other government program to prevent wasteful spending in these tough economic times. That’s why I’ve pushed for legislation to scrub, sunset and possibly repeal scores of preferential tax breaks in the Texas budget. State agencies are subjected to a “sunset review” every 12 years to determine if their functions need to be continued. The tax code would benefit from a similar periodic review of all its exemptions, exclusions and special treatments to answer one simple question: Are they working?
This is not a radical idea. Oregon recently enacted legislation requiring most of its tax credits to sunset every six years, Nevada’s constitution requires that all new tax exemptions be created with a sunset provision, and Washington state has implemented a 10-year performance review cycle for their tax breaks. Texas should step forward and make real reforms to ensure fairness and efficiency.
At a time that those in control of the Capitol force cuts to public education, health care and financial aid, the public must respond by demanding an accurate picture of the entire state budget. That necessarily includes the tax breaks and loopholes that were put in place – many for a valid reason – but have never been reviewed for their effectiveness or continued need. For the future of our state, Texas must do better.
Last year, Texas chose to deal with its $27 billion budget shortfall by irresponsibly cutting vital services for Texas families and our schools, rather than address our fundamentally unfair and ineffective tax system. Next year, we will again face a huge budget deficit and the same choice: Do we punish Texas schoolchildren and families, or do we do the right thing and eliminate wasteful tax loopholes, simplify the system and treat everybody fairly? How that question is answered will tell us a lot about where Texas’ priorities lie.
Ellis, a Democrat, represents Texas Senate District 13.