Slow Texas’ budget growth while cutting the sales tax rate

Written by Kolten Morris

Texas has been at the forefront of job creation during the last six years when roughly two-thirds of net new jobs created nationwide were in the Lone Star State.

To keep Texas on a path to prosperity, the 84^th Legislature should create a mechanism to help slow the growth of the state’s budget while providing sales tax relief to Texans by creating the sales tax relief (STaR) fund. 

Many legislators would like to slow the growth of the state’s budget by saving money from reducing program funds or even eliminating them. Unfortunately, a mechanism to do this doesn’t currently exist. Instead, those savings go to other areas of the budget. Legislators have voiced their frustration with this process.

The Legislature could fill this void by creating the STaR fund this session making it available for use during the 2017 session. This would provide a mechanism for legislators to allocate dollars to the fund then direct the comptroller to calculate the duration and amount to cut the state’s sales tax rate based on how much is in the fund. These dollars include budget surplus, funds available from cuts to ineffective state programs, and dollars in excess of the rainy day fund cap.

Though the STaR fund would not be available until next session, let’s consider how it might work if the fund had a $2.2 billion balance.

Near the start of a fiscal year, the comptroller would calculate the state sales tax rate adjustment based on sales tax revenue during the previous fiscal year. Let’s assume the $27.3 billion in sales tax revenue in fiscal 2014. Since each cent of the 6.25 percent sales tax rate collected $4.4 billion in revenue, the comptroller could lower the state’s sales tax rate to 5.25 percent for six months. The comptroller would transfer the money in the STaR fund into general revenue to replace the lost funds until the fund is depleted.

The STaR Fund could benefit Texans by reducing the footprint of government and by saving them money in checkout lines, at restaurants, and at other consumer locations.

With more money in Texans’ pockets, they could spend more of their money as they see fit, generating more business investment and economic growth in the process.