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Texas governor calls for business tax cuts

Will Weissert, Associated Press

AUSTIN, Texas (AP) -- Gov. Rick Perry called Monday for $1.6 billion in business tax cuts, renewing his pleas for "tax relief" that have largely been ignored since the Texas Legislature returned to work in January and conceding it may be necessary to tap the state's once-untouchable cash reserves to pay for them.

Addressing reporters at the Austin Chamber of Commerce, Perry endorsed a 5 percent reduction in business tax rates and making permanent a currently temporary exemption allowing companies with less than $20 million in gross receipts to deduct their first $1 million — which the governor said is already "keeping close to $1 billion in the hands of small and medium-sized businesses."

He also urged moving-expense tax deductions for firms that relocate to Texas and lower taxes for companies that file tax returns electronically.

Perry said as many as 100,000 businesses could see lower taxes under the plan, and noted that the state's skyrocketing population growth now means about 1,000 new people are moving to Texas every day.

"Our low tax burden is one of the main reasons that Texas has been such an attractive destination for people chasing their ambitions," Perry said, adding that "we are the epicenter of job creation in this country."

He acknowledged that it might require using some of the state's reserves, commonly known as the Rainy Day Fund, to cover the costs of his proposed tax cuts, but said he hopes the money can be found elsewhere in the budget. The fund has a projected value of $12 billion.

That concession was a dramatic departure from two years ago, when Perry — looking to solidify his tea party credentials as he prepared for an unsuccessful presidential run — said state reserve funds shouldn't be touched so Texas would be fully ready for a catastrophic natural disaster.

Back then, however, a still-sluggish economy had the state looking at a $27 billion budget shortfall. Now, Texas' economy is humming and the state is flush with tax revenue. Perry even opened the legislative session urging lawmakers to reduce taxes by as much as $1.8 billion.

But, so far, those cuts haven't materialized. Instead, the Republican-controlled Legislature has advanced proposals to reverse some of the $5.4 billion it cut from public schools and educational grant programs in 2011, while also considering using the Rainy Day Fund to pay for key water and infrastructure projects.

Adding legislative muscle to Perry's calls Monday were state Sen. Bob Deuell, head of the chamber's Economic Development Committee, and Rep. Harvey Hilderbran, who chairs the powerful House Ways and Means Committee.

Deuell, a Greenville Republican, thanked the governor for "trying to take less out of (entrepreneurs') pockets so they can reinvest in their business and make Texas grow even more," while Hilderbran said proposals in the House have sought to extend the business tax exemption up to a firm's first $20 million in gross receipts.

Texas' business franchise tax took its current form in 2006 and was meant to soften the blow from the Legislature's voting to slash statewide school property taxes by a third. Educational leaders say that, even at the time, lawmakers were warned that the business tax wouldn't make up for the lost property tax revenue — and in the years since then Texas' per-pupil funding has plummeted.

Reducing the tax further could mean even less money for schools.

The plan was immediately cheered by the influential Austin conservative think tank the Texas Public Policy Foundation — but still could be a tough sell for others.

Shortly before Perry spoke, JoAnn Fleming, chairwoman of the Tea Party Caucus advisory committee to the Texas Legislature, gathered with conservative grassroots leaders to urge lawmakers not to tap the Rainy Day Fund.