Watson Wire

Last week, I keynoted the Greater Austin Hispanic Chamber of Commerce's Tri-county Small Business Summit in San Marcos.

The meeting was a few days after the Texas Supreme Court ruled that the state’s business tax, also known as the margins tax, is constitutional. That ruling could have a big impact on businesses, and small businesses in particular.  Because now that the margins tax has been determined to not be an unconstitutional income tax, the legislature will have a foundation for dealing with a growing financial problem.

Why it matters

Of course, the small business issues I talked about last week affect more than just small businesses. All told, these enterprises account for nearly 46 percent of the state’s private-sector jobs and more than 95 percent of the state’s employers, according to the National Federation of Independent Business.

Unfortunately, the margins tax isn’t nearly living up to its 2006 promises and projections – it underperformed in the 2010-11 budget to the tune of about $5 billion.

Partly as a result of this failure, the state confronted a roughly $27 billion shortfall this year. And we could face more 11-figure budget issues when the legislature reconvenes in 2013.

All of this leaves small businesses in something of a no-man’s land when it comes to taxes and the state budget.

Many businesses loathe the margins tax, feeling it has a disproportionate impact on them. Some of these issues, such as the way the tax deals with contract labor, have been brought before the state's Business Tax Advisory Committee in recent years.

But the state’s also facing another school finance crisis – much like it did in 2006, when the margins tax was adopted. School districts are once again suing the state over what they rightly argue is an inadequate and unfair education system.

In other words, not only is the margins tax broken, but the school finance problem it was meant to solve has become re-broken. In fact, some would argue that it's always been broken, and the problems of the busted system have simply reached another crisis point.

Questions, questions

Last session, the Chair of the Senate Finance Committee at least gave a speech saying we needed to deal with failure of the margins tax, though nothing came of it.  So will those in control of the Capitol now make a serious effort to correct this problem that’s presenting such a challenge to Texas and its future?

And what will all of that mean to our small businesses, schools, and economy?

Those are tough questions about a very hard challenge. But I’m hopeful that those in control of the state will make a real effort to answer them, even if it means jumping on all of these issues in the 13 months we still have before the session starts. 

Our school children, our businesses, and our people deserve it.