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Copyright © 2711 Pearson Education, Inc. Publishing as Longman
Section Four Objectives In other words, by time you take your fourth test you
should know/understand/be able to discuss…
Why the economy in Texas has done well while other states have suffered.
Where the money comes from, and where the money goes.
The merits (i.e. results) of both progressive and regressive taxation.
Public policy as it relates to poverty.
Public policy as it relates to education.
How concerns about the environment impact public policy as it relates to
resources, energy production, and energy consumption in America.
How public policy as it relates to natural resources affects the cost of energy.
Copyright © 2711 Pearson Education, Inc. Publishing as Longman
“How happy will nations be
when they see clearly how and
why what we find false and what
we find true of man in isolation
continue to be false or true of
man in society!”
“Man In Isolation”
Frederic Bastiat (2:57)
The advantages of others are put at our service,
as our advantages are put at theirs.
Chapter 12:
The State Economy
and the Financing of State Government
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Cotton: 1st economy; grown before & after the Civil War;
Galveston port city shipped cotton around the world.
Cattle: inherited from Mexicans spread across west
Petroleum: much of 20th century; 1901 Spindletop Diversification: now tied to high tech industry.Texas: 2nd largest state economy (CAL:1st, NY:3rd) Global trade and NAFTA Free Trade (5:27)The true measure of
a country’s riches wasn't its stockpile of coins but rather the amount of commodities its citizens could enjoy. – Adam Smith
Trade Imbalance and Outsourcing? (5:51)
The Texas EconomyHeart of the Economy, and Boom and Bust
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Important: Low taxes, Reasonable regulations.
Another Triumph for Texas: Best/Worst States for Business 2012; 2013: Texas Still on Top2014: Texas has been #1 for 10 years!
5 Worst States for Business-Tax Climate
Business Ownership in America (11:00 - 16:45)
Atlas Shrugged: Is American Business Going on Strike?California Wants Small-Business Owners To Pay Back $120 Million In Tax Breaks (2:07)
Also Important in creating a favorable business climate is Tort Reform (Ch. 10) and “Right to Work” (Ch. 2)
The Texas EconomyCreating a Favorable Business Climate
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Texas, Red States
Beat Blue States On Jobs, Growth
More Taxes or More Jobs? (7:01)
2013: Texas is Still the State for Jobs! (3:22)
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“State finance consists of raising and spending money….Whenever money is
raised, it comes from someone; whenever it is spent, someone gets it.
Struggles over who will pay for government and who will receive dollars from
it are at the heart of politics in Texas, as elsewhere.” (Textbook p. 394)
The two officials most concerned with state financial administration:
Comptroller – tax collection, projects revenue (Glenn Hegar)
Auditor – ensures legality of expenditures (John Keel)
Five Major Funds of 5,000(where State money goes):
1-General Revenue Fund: most state programs
2-Available School Fund: textbooks, other school aid
3-Omnibus Tax Clearance Fund:1,2, construction
4-State Highway Fund: build and maintain roads
5-Highway Motor Fuels Fund: ¼ to 2, and remainder to highways and roads
Texas State Budget
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When the Texas legislature meets in a regular
session they must write a 2 year budget.
The Budget Process - 3 stages
1) Planning, preparation
- Planning begins in the spring before the year
the legislature meets.
- Agencies submit budgets.
- Governor’s Budget Office (GBO) and the
Legislative Budget Board (LBB) propose
budgets. The LBB is favored by legislature.
This is known as the dual-budgeting system.
- LBB is composed of four Representatives
and four Senators.
The Budget Process
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2) Authorization and Appropriations
- Approving state programs and the money for the
programs involve committees: House Ways
and Means (revenues); House Appropriation
(spending); Senate Finance (revenue, spending)
- House & Senate versions of bill sent to conference
committee (5 Senators, 5 Representatives)
- Comptroller must certify that expected revenues are
sufficient to fund expenditures. (What prohibits the
Texas Legislature from having a budget deficit?)
- Approval late in session
- Governor: line-item veto (can delete, but not add)
3) Execution/Spending - governor, lieutenant gov.,
speaker deal with spending and reallocation
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Where Does the Money Go?
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Nontax Sources of Revenue:Federal Grants (largest source) –
Categorical grants-in-aid and Block grantsFederal Mandates often exceed the
revenues provided.
Borrowing - State Bonds issued to pay for prisons, water projects, etc. ‘Pay-as-you-go’ budget. The Governor along with the legislature has
the authority to transfer funds to meet emergencies between legislative sessions.
Other Nontax Sources - Fees (driver’s licenses, car inspection, car tags, fishing license, etc.)
Where Does the Money Come From?
Sources of State Revenue: Nontax
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Where Does the Money Come From?
Sources of State Revenue: Taxes
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Tax Collection by Major Tax
56% - Sales tax (main source) But, Texas does not tax “lifeline items”
(food, medicine, work clothes).
11.4% - Franchise tax (not corporate income tax)
8.2% - Motor Fuels (pay at the pump)
7.7% - Motor Vehicle sales, leases
5.8% - “Sin Tax” (tobacco and alcohol)
4.4% - Severance tax (natural resources – oil, gas)
3.7% - Insurance Occupation
2.8% - Other: Inheritance tax (Death Tax)
Revenue taxes and Regulatory taxes? Regulatory taxes – easy to
raise because it only “affects part of the population, and other citizens
are willing to support the increase.” Textbook p.400 Bizarre Taxes
(1:98)
Where Does the Money Come From?Taxation, The Tax Burden in Texas, Who Benefits,
and Contemporary Issues
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Progressive (Income tax) V. Regressive Taxation (Flat tax)
Which system would ask “Who has the ability to pay more”?
The issue of tax equity – Which form is fair? (7:25)
What type of taxation system does Texas have? Why?
Tennessee and New Hampshire tax
only dividend and interest income.
Where Does the Money Come From?The Tax Burden in Texas, Who Benefits,
and Contemporary Issues
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Laboratories Of Democracy (3:57)
