TEXAS MAY CONSIDER INCOME TAX TO SOLVE BUDGET WOES
The State of Texas, faced with a record
5.8 billion dlr budget deficit over the next two years, may
have to consider introducing income tax,economic analysts said.
     Such a possibility was unthinkable a few years back when
the state's enormous wealth from oil and gas revenues easily
allowed Texans the luxury of paying no personal or corporate
income tax.
     However, last year's dramatic slump in oil prices not only
sent the Texas economy into a tailspin, but cut heavily into
the state's tax revenues.
    Both Moody's Investor Services and Standard and Poor's cut
their credit ratings of the state to double A from the top
triple A in early March.
    Moody's Vice President George W. Leung said it was the
first time Texas' rating had been lowered since 1962, adding
the report noted that while "the Legislature is now considering
proposals to restore budget balance, medium term prospects for
full recovery are weak."
    With only a slight improvement in the economy seen by State
Comptroller Bob Bullock, the Texas Legislature must grapple
with a one billion dlr deficit by August 31 and another 4.8
billion dlr deficit by the end of the next biennium. No other
state in U.S. history has faced such a deficit.
    "There is a strong independent streak in Texans and five
years ago I would never have dreamed the State Legislature
would institute an income tax," said George Bland, Assistant
Professor of Political Science at North Texas State University,
adding, "Now my contacts at the Legislature tell me it's
coming, it's inevitable, it's only a matter of time."
     State taxes on oil and gas production traditionally
supplied as much as a third of the state's revenues.
    However, that source has fallen to about 15 pct in recent
years, and with last year's price slump, the state's dependence
on sales taxes is approaching 50 pct.
     Bland said he believes the Tax Reform Act will be a major
factor in the state's decision because under it sales taxes are
no longer deductible from federal income tax while state income
tax is.
    John Kennedy, senior research associate at the Austin-based
Texas Research League said, "There is a great deal of popular
sentiment against it, plus the first plank of Governor
Clements' platform was no tax increases, let alone a new tax."
    However, he said that since the oil price fall the state
faced a choice of either instituting an income tax or
broadening and possibly raising the sales tax.
    Steve Pejovich, director of the Center for Free Enterprise
at Texas A and M University and an opponent of income taxes,
said he favored reforming the present tax system to take
account of the changed structure of the economy.
    "We should rely less on traditional sources, such as oil
and agriculture and real estate and more on service industries,
manufacturing and high-tech," Pejovich said.
    Tony Proffitt, an aide to State Comptroller Bob Bullock
said, "Bullock is opposed to an income tax, but has warned the
Legislature that if they get tired of looking at everything
else, that's the only option."
    Apart from Texas, states which have no individual income
tax are Alaska, Florida, Nevada, New Hampshire, South Dakota,
Washington and Wyoming 
    For the time being, Attorney General Jim Mattox has ruled
that the Legislature may carry over the current one billion dlr
deficit into the next biennium, even though the state
consitution requires a balanced budget. But as State Treasurer
Ann Richards said last Thursday, "Jim Mattox's decision today
turns the heat down on the pressure cooker, but we must not
think that the goose isn't still cooking."
    Opponents to new or higher taxes argue in favor of spending
cuts. But the state is already under pressure from a Federal
District Court to clean up its overcrowded prison system -- or
face 24 mln dlrs a month in fines.
    And U.S. Education Secretary William Bennett has accused
the state, among others, of lax education reform. Earlier this
year, both houses of the Legislature, citing financial
restraints as well as teacher morale, passed bills abandoning
plans to require teachers to take competency tests.
    Bland said he believes the state will set up a commission
next year to "study alternative revenue sources," with an
income tax being instituted as early as January 1989.
    "If the political leaders are educated about (the effects
of the Tax Reform Act), I think there will be a gradual drift
toward income tax," he said.
                
 Reuter
