Office of the Governor Rick Perry

Gov. Perry's Remarks to the Texas Association of Manufacturers Luncheon

*Note - Gov. Perry frequently departs from prepared remarks.
Tuesday, March 21, 2006  •  Speech

Thank you, Kenny (Jastrow).  It is an honor to be here with the men and women who help supply Texas families with good jobs and the world with the best products made anywhere on the face of the earth – the members of the Texas Association of Manufacturers.

Tony Bennett, thank you for the invitation to speak today and for volunteering to chair this new organization.

As an industry that employs close to 900,000 Texans, invests $96 billion annually in our state and shoulders a tremendous property tax burden, Texas manufacturers are wise to make their own distinctive voice heard, and no time better than the present.

Our manufacturing base is the primary reason Texas is ranked the number one exporting state in America.  And just as importantly, every manufacturing job created in Texas results in corresponding growth in retail, shipping and a whole host of industries.  That’s why the members of this association can take pride in how well the entire Texas economy is performing. 

Since 2003, Texas has gained 530,000 new jobs, employment has soared to an all-time high, our business climate has been ranked one of the best in the nation, and the Federal Reserve recently said our economy is running the strongest it has since 1998.  The amazing economic growth we have experienced in recent years didn’t just happen by chance.  It happened because Texas has created an environment that welcomes job creation and rewards entrepreneurship like no other state.

My philosophy is simple: you can’t tax, spend, regulate and litigate your way to prosperity.  But you can grow your way there with the right investments.  We made that difficult choice in 2003. 

When we faced a $10 billion budget shortfall in 2003, we could have taken the easy way out and asked families and businesses to do with less so government wouldn’t have to.  Some wanted to use employers as a financial scapegoat.  But instead we reduced state spending for the first time since World War II, balanced our budget without asking taxpayers for one cent more and made unprecedented investments in job creation.  As a result, in two years we turned a record shortfall into a $4.3 billion surplus, and opportunity abounds like never before.

The lesson of 2003 is clear: when government is fiscally responsible, keeps taxes low and encourages job creation, Texas will grow its way to prosperity.  That lesson is one Texas cannot afford to forget as we address the challenge of reforming school finance. 

I view the upcoming special session as an opportunity to make lasting improvements to our tax structure so that it is more modern, broader and fairer.  And it is a chance to give Texans a property tax cut that stands the test of time.

If Texas is to continue to be a national leader in job creation, any new tax system we adopt must reward jobs and investments, not penalize them.  And just as importantly, our tax structure needs to treat businesses in different industries with an even hand.  Today, only one in 16 businesses pays the franchise tax.  It has become a voluntary tax that is an unstable source of revenue for our schools.  I think it makes more sense to have a broader tax that captures more of the economy at a lower rate, and that provides incentives for job creation, and investments in employee healthcare and pensions. 

A tax system can be both a carrot and a stick.  Just as we want to encourage job growth and wage-earning, it makes sense to discourage a harmful addiction like smoking that adds billions to the cost of taxpayer subsidized healthcare.

Now, I recognize that there are some folks who view our $4 billion budget surplus as money that can be used to buy a ticket on a fast train out of Dodge.  But passing comprehensive tax reform is a better approach for a number of reasons. 

First and foremost, simply using surplus revenue to fulfill the bare bone requirements of the Supreme Court’s ruling doesn’t provide any long-term solution.  In 1997, we tried the exact same strategy with a $1 billion tax cut.  Eight years later, the property tax cuts have evaporated, school finance has been litigated and taxpayers are now exasperated.   

Second, it is only fiscally responsible to spend as much as you can generate going forward.  Using some of the budget surplus to pay for property tax relief is wise.  Using all of the surplus for property tax relief will leave a huge budgetary hole for future legislatures to fill.  And then they will have to pass a tax plan that is larger in scope and that generates more revenue from the private sector.

Third, why cut property taxes by 20 percent for one year when you can do it by 33 percent AND, because of tax reform, pay for that property tax cut in the years to come?

Fourth, the current franchise tax is nothing more than a voluntary offering.  If you pay it today, you are either generous, or you employ a bad CPA. 

If we fail to reform the franchise tax, it will continue to become a dwindling source of revenue for our schools at the expense of the few who pay it.  I say let’s not substitute speed for substance.  And let’s not confuse doing the easy thing with doing the right thing.  It may be more of a challenge to reach an agreement on comprehensive tax changes, but it is a challenge we should take head on because it is the right thing to do.  And I am confident that lawmakers will be able to overcome past disputes and get the job done before June 1. 

To those who think it would take a miracle for that to happen, I ask, what do you call the fact that John Sharp and I are working together on this very issue?  After taking input from all across the state, the commission John is leading is close to releasing a plan that is fair, that protects jobs and that provides a long-term source of revenue for our schools.  And I believe it will be a plan that can win bipartisan support in both chambers of the legislature.

To some, tax reform is just a convenient phrase to push a big spending agenda.  To me, it must always be about ensuring opportunity for employers and families, and a reliable source of revenue that allows our schools to succeed in educating our children.

We have made remarkable strides in improving education in recent years.  Since 1999, we have put $10 billion in new money into the classroom.  We are the first state in the nation to require a college-prep curriculum for students in high school today.  Student achievement is up for children of all backgrounds and all grade levels, and a record number of students are going on to pursue a college degree.  And our schools are going to be even better because I ordered that 65 percent of all education dollars be spent on direct classroom instruction.  Reforms, higher standards and stronger accountability have helped our schools climb the mountain of success. 

But funding the status quo won’t get us further up the mountain.  That’s why I support performance pay for teachers and why I recently ordered one of the first statewide merit pay systems in America.  If you pay excellence the same as mediocrity you make mediocrity its own incentive.  Let’s pay the best and brightest more so more will seek that status.  And let’s not be defensive about this kind of idea.  After all, it has worked pretty well for more than 200 years in private industry.  I support continued reforms to education because Texans not only want more money for education but more education for their money. 

At the same time, in the upcoming special session, it would be wise to start with the issue that the Supreme Court has ruled unconstitutional, and that is our property tax system.  But if the speaker and lieutenant governor can bring me a school reform bill that both chambers agree on, I will gladly add it to the call once the tax issue is resolved. 

Folks in Austin think too often about how much money a tax will generate and not who generates it.  I will never forget you, the employers who create jobs and fund our schools, the individual citizens who do your fair share and expect government to live within its means like you and your family.

I am proud that Texas has become a national model for education reform and job growth, and I recognize that so much of that success is a result of what the members of this organization are doing each and every day. 

As we address the great challenges of reforming our tax system and improving education, I ask each of you for your continued guidance and support, and I want you to know that my door is always open.  I appreciate what you do for our state and our people.  You give Texans something far greater than jobs and paychecks, and that is the opportunity to provide a better life for the next generation. 

Thank you, and God bless you.

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