In the light of the upcoming constitutional amendments election, our office has received a few questions from people wanting to understand more about Proposition 4. There has been a lot of information, misinformation and questions floating around about what Prop 4 accomplishes and how it would be implemented. I’d like to share our answers with you to help give a clearer picture of the reasoning behind the amendment, and help you to make a more informed decision at the ballot box
Q: Does this actually ban a State Income Tax? Isn’t it already banned?
A: Currently the legislature can propose an income tax if the revenue goes to property tax relief and/or education funding. An income tax proposal would then also have to go to a statewide referendum. The change under Prop 4 fully prohibits any income tax. Any exceptions to that ban would take another amendment to the constitution, requiring a 2/3 vote from both houses and majority approval from voters, instead of the current requirement of only 1/2 of each house and majority approval from voters.
Q: Why does the language in the amendment strike the allocation of funds for education and property tax reduction?
A: Currently, an income tax is legal for the legislature to pass, but only if the funds go to property tax relief and education, and it could only be enacted if a referendum on the bill passes. Prop 4 removes the option all together. Having a provision that says it can’t exist at all and a provision that says if you do the money has to go to a certain place would be contradictory.
Additionally, as with the requirements that lottery proceeds go to fund education, these kinds of mechanisms are vulnerable to a shell game where, while the funds from an income tax would go toward education funding, an equal amount of other revenue sources are taken away from education at the same time, effectively allowing the state to spend the income tax revenue on whatever they choose.
Q: Does the switch from “Natural Persons” to “Individuals” provide a loophole to give big tax breaks to businesses?
A: The change in wording was suggested by our legislative council as a cleaner more updated version of the statute. During the legislative process there were some questions about the impact of the wording changes. HB 4542 by Rep Guillen solved this problem by making it clear that “individual” means “natural person” and does not include businesses, so the language in Prop 4 does not provide a loophole for businesses to claim that taxes on their revenue are a form of prohibited income tax.
Q: If the reason is for a 2/3 majority vote, then why is that not listed on The Texas.gov summary?
A: The fiscal note on the .gov website is prepared by the Legislative Budget Board and seeks to summarize the fiscal impact and changes that the bill would have to the state. The change to vote requirements of the legislature does not carry with it a fiscal cost and therefore would not have been listed.
However, the Analysis document on the .gov website lists that it would be a change from a general law (simple majority vote requirement) to a constitutional amendment (2/3rds vote requirement).
So in summary, while there is currently a path for the State to implement an income tax, Prop 4 removes that ability and sets a 2/3rds majority of the House and Senate as the new standard for creating an income tax. The change from simple majority to 2/3rds would effectively require bi-partisan support to consider a new tax rather than only one party making the entire decision either way.
Additionally, this change also prevents certain tactics from being utilized to sway a statewide vote. For example, with the current language, a future legislature could base the state budget on the new tax being implemented, which would put undue pressure on the voter to pass the tax to avoid a manufactured budget crisis. With the ban in place there would be no way to argue that such a budget would follow the constitution as written and would be effectively unable to pass both houses.
Finally, the current requirement that an income tax go to fund education and property tax reduction can be a shell game. Without a requirement that the new revenue not be offset by reductions in other revenue put towards education, an income tax could lead to our sales tax revenue being taken from education to be spent elsewhere, completely defeating the purpose. It is better to simply remove that provision altogether as part of a blanket ban.
A 2/3rds majority effectively means that any effort to overturn the ban on an income tax would be bipartisan, as one party rarely control the necessary 100 seats in the House and 21 seats in the Senate.
An income tax would be a massive change to our state. If we implement one it shouldn’t be part of a shell game, and it should require broad support beyond a simple majority.