Question 3 (10 marks)
The following is an excerpt (with dates changed) fromAgainst the Grain, a series of recommendations by theState Comptroller of Texas on how to âsaveâ $4.5 billion andthereby balance the stateâs budget:
Require an Annual August Remittance of One-Half of AugustâsSales Tax Collections by Monthly Taxpayers. The Legislature shouldrequire sales taxpayers to remit half of Augustâs collectionsduring that month.
Background
Currently, sales tax payments are remitted either monthly,quarterly, or annually. They also may be prepaid either on aquarterly or on a monthly basis.
Monthly taxpayers, including those who collect taxes on theirown purchase or use of taxable items, are required by law to remitto the state all tax collectionsâless any applicable discountsâbythe twentieth day of the month following the end of each calendarmonth. The stateâs fiscal year ends on August 31.
Recommendation
The Legislature should require all monthly taxpayers to remitone-half of each Augustâs sales tax collections during thatmonth.
Specifically, sales taxes collected between August 1 and August15 would be due with their regular August 20th payment. Monthlytaxpayers would remit tax in the usual manner during all othermonths.
This is not a prepayment plan, but a speeding up of theremittance of actual taxes collected and owed to the state. Thiswould impose an additional burden and would reduce taxpayer cashflow, but should be considered as preferable to a tax increase.
Implications
An annual payment by monthly filers of taxes actually collectedduring the first 15 days of August would increase Augustâscollections and decrease Septemberâs collections. Although theinitial imposition of this proposal might temporarily inconveniencesome taxpayers, the prompt payment to the state of some of itssales tax revenuesâcollected, but not yet remittedâwill enhance therevenue stream at a critical time each fiscal year. During thefirst year of implementation, all months would have normalcollection patterns except August, which would be larger thanusual, thereby producing a fiscal gain.
Each following year would see smaller than normal (current)collections in September and larger collections in August. Thesedifferences would essentially offset each other. It is important tostress that failure to speed up collections each year afterimplementation would cause a fiscal loss. The gain to the generalfund in the year of implementation would be $215 million.
FiscalYear Gain to the General Revenue Fund
2016 $215,113,000
2017 $ 0
2018 $ 0
2019 $ 0
2020 $ 0
1a. On what basis does the state probably prepare itsappropriation budget? Explain.
1b. Do you believe the state will be better off, in economicsubstance, as a result of the proposed change?
2. According to the comptroller (last paragraph), the changewould have no impact on revenues in future fiscal years as long ascollections are also pushed forward in those years. Do you agree?If so, is there any reason not to adopt the proposal?
