With the upcoming premiere of the 2013 legislative session, we’re beginning to see trailers of this biennial blockbuster featuring a cast of characters who will craft a budget that will either cripple public services and education or save us from Big Brother and any need to think for yourself, depending on your viewpoint.
Whichever way you see it, it’s guaranteed to be a contentious drama, pitting those who choose to fund government to compete in the 21st century against those who want to drown it in the bathtub. We may even see the Legislature having to revamp their revamp of the franchise tax, known as the business-margins tax. This depends on what the Texas Supreme Court rules in the next few months concerning the constitutionality of that tax.
In the event of a revamp, we’ll be on the edge of our seats, I’m sure, watching lawmakers pretzel themselves into adopting some solution that doesn’t walk or talk like an income tax. On the other hand, we’re accustomed to this two-step around the income tax, as lawmakers shuffle around the floor with more occupation and higher sales taxes. After all, the word “income tax” is the kiss of death for Texas politicians. That’s why we live in a state where over 55% of state revenues are raised by a regressive sales tax. Counties, municipalities and other special tax districts raise a big chunk of change from the 2% in sales tax they add on to the 6.25% state tax.
But no matter how many times we dance around with our tax structure, it never gets easier: there is always much gnashing of teeth and avoidance of the reality that government programs – the kind that separate us from third world countries and our frontier origins – need funding. Thus, every two years I am reminded that the more things change . . . the more they don’t.
Take 1875, for example. That year, elected delegates to the Constitutional Convention came to Austin to write a constitution to replace the Reconstruction constitution and any remnant of that government, known for its corruption. Reconstruction ended, leaving a bad taste in the mouth of citizens who had felt unfairly taxed by the carpetbagger government and an economy in severe economic depression. With government coffers suffering, delegates didn’t even allocate funds to hire stenographers as previous conventions had done.
In fact, the only reason I can tell you about convention floor debates was that various newspapers across the state sent reporters to cover the events in Austin and they often published detailed accounts of what the delegates said. In turn, these accounts were gathered and compiled into book form by Dr. Seth Shepard McKay, history professor at Texas Tech, whose book Debates in the Texas Constitutional Convention of 1875 was published in 1930. Without these, all we would have is the convention journal including the various versions of the constitutional articles, the amendments that were offered, records of committee and floor votes, along with some miscellaneous information.
What we see from these sources is a group of men – mostly members of the Granger (primarily farmer) movement – seeking to curtail the power of the government to tax. Many of the delegates had their sights set on the occupation tax, apparently make quite unpopular by the Reconstruction government. In contrast, current occupation taxes have been enacted with little ado. Today, we have taxes on individuals engaged in oil well services, attorneys, importers, bondsmen, owners of coin-operated machines, and even the franchise tax (a tax on businesses), to name a few.
But, so unpopular was the occupation tax in 1875, that Sections 1 and 2 of the Taxation article (Art. VII), as initially introduced and passed by the Revenue and Taxation committee, was written to impose the tax only as a deterrent to immoral activities:
Section 1. Taxation in this state, as a rule, shall be equal and uniform, and this general principle shall only be departed from in cases of great public emergency, or for the purpose of repressing occupations deemed adverse to the god [sic] of society.
Section 2. Occupation taxes, being in their nature an infringement upon natural rights of persons, shall be laid only to discourage pursuits immoral in their tendency or not strictly useful, or as a discrimination against itinerant traders.
Citizens from Brazoria County also chimed in about the occupation tax, passing a resolution that was printed in the convention journal. Their message to the convention requested a vote “against any license law discriminating against occupation and professions, and urging the imposition only of equal and uniform taxation.”
Voices against the tax rang out loud and clear on the convention floor. One supporter of the committee’s version of Article VII explained that “For years, at every political meeting on the stump, the cry had been ‘relief, relief’ against that occupation tax.” Other delegates pointed to the current economic depression and speculated that occupation taxes would exacerbate the situation by being passed on to consumers in the form of higher prices. This pass-through phenomenon, it was said, made occupation taxes an unequal and deceptive form of taxation, “wanting in the elements of truth and direct action that should always characterize the solemn and grave enactments of a legislative body.”
The tax was even denounced as a “tax on brains” that discriminated against “the poor lawyer and doctor who had not a cent at the end of the year and could not do more than pay their board.” One delegate claimed that an occupation tax worked unequally, unlike an income tax that would apply to all citizens.
But, cooler heads on the floor suggested that the tax was not inherently ruinous and “it might be safely left to the legislature to grade taxation so as to make the burdens equal and uniform.” Furthermore, declared another, it would be unfair not to impose an occupation tax on professionals. Analogizing professional knowledge to working capital, which was taxed as property, he contended that exempting professionals from occupation taxes would be tantamount to the creation of a privileged class.
A more practical argument in favor of occupation taxes was advanced by Fletcher S. Stockdale, one of the few delegates with substantial government experience. Stockdale noted that occupation taxes contributed from $400,000 to $500,000 to the state treasury. Moreover, observed another supporter, that amount might become an even larger source of revenue under a more efficient and honest government than the one before.
Pragmatist Stockdale also pointed out the difficulty in authorizing taxation of occupations that were “odious.” Such a provision, he noted, would require the legislature to distinguish between moral and immoral occupations, in essence, making the legislature a judge of morality. In agreement, Delegate Judge John H. Reagan stated that he would be most unwilling to trust questions of morality and ethics to the legislature.
The convention, however, never voted on the morality provision for occupation taxes or any other provision in the committee majority’s version. Instead, Delegate James Fleming, offered the tax committee’s minority report as a complete substitute for the majority report. The rankled Committee chairman complained vociferously that Fleming and Stockdale had been swayed by “special interests,” but the substitute was approved by delegates by an overwhelmingly vote of 58 to 16.
As debate proceeded on the substitute, little of the original sections 1 and 2 survived other than the equal and uniform provision. Article VII was amended on the convention floor by adopting specific provisions to section 1 for property, income, occupation, and poll taxes. Ultimately, it read:
Taxation shall be equal and uniform. All property in this State, whether owned by natural persons or corporations, other than municipal, shall be taxed in proportion to its value. . . The Legislature may impose a poll tax. It may also impose occupation taxes, both upon natural persons and upon corporations. . . doing any business in this State. It may also tax incomes of both natural persons and corporations. . . except that persons engaged in mechanical and agricultural pursuits shall never be required to pay an occupation tax. . .
Much more was discussed in regard to Article VII – which I hope you will let me tell you about some day – all proving how difficult it is to reach consensus on taxation. In this case, final passage of the tax article was probably facilitated by the last line of the excerpt printed above, i.e., that those involved in agriculture (like those of the Granger persuasion) would be exempted from ever paying an occupation tax.
But, I hear you saying, what did the delegates say about income taxes? What about that horrible, monstrous income tax???!!! I hate to disappoint, readers, but the delegates seemed to think the income tax was hunky dory. And maybe that’s just a sign of the times – they didn’t have much income, but they sure had occupations. Moreover, they didn’t have any experience with a federal income tax to make them go into Pavlovian spasms every time they heard “income tax.”
But, looking ahead, whatever the 2013 Legislature does in regard to taxes, it’s a safe bet that nothing has changed since 1875. We’ll hear a lot of political stump speeches, posturing, the sky-is-falling predictions, as whichever grown-ups are left in the Leg try to find a solution to the mess we’ve created for ourselves. A lot of horse trading will occur, and no one will be particularly happy with the results. It’s to be expected. After all, death and taxes are the only true certainties of life, neither of which we want to contemplate or experience.