Texas Lawmakers Look to Increase the Lone Star State’s Tax Advantage
Texas has been a role model in terms of governance, tax reform and job creation, but it still has a major flaw: a gross receipts tax on employers known as the margin tax. The Texas margin tax is complex, unnecessary and keeps small and mid-size businesses from creating jobs. It even applies to companies who don’t make a profit.
Its elimination would move Texas from being currently ranked 10th at Tax Foundation’s Business Tax Climate Index to 3rd best in the nation. A Texas Public Policy Foundation Report found that, based on dynamic econometric models, repealing the margin tax would lead to the creation of 129, 200 jobs in the first five years after its elimination.
The good news is that legislation to get rid of the margin tax, Senate Bill 105, is being considered by legislators. Texas Gov. Greg Abbott stated that he “will reject any budget that does not include genuine tax relief for Texas employers and job creators.” A great way for legislators to send Gov. Abbott what he has requested is to pass legislation to end the margin tax.
Other states are working to make their tax codes more competitive by cutting rates and providing relief to individuals, families, and employers. As such, Texas lawmakers cannot rest on their laurels. Americans for Tax Reform reached out to Texas legislators today to urge them to repeal the margin tax. A copy of s letter can be found below:
March 6, 2015
Dear Members of the Texas Legislature,
On behalf of Americans for Tax Reform and our supporters across the Lone Star State, I urge you to keep taxpayers in mind as you consider the issues that will come across your desk during the 2015 legislative session. There are two main things that you can do to protect Texas taxpayers and stoke economic growth: 1) rein in the unsustainable trajectory of state spending, which can be accomplished by instituting a true and unbustable state spending cap; and 2) eliminate the state’s business tax, otherwise known as the margin tax.
As has been noted in Forbes, even relatively-well governed states like Texas face significant fiscal challenges. A Texas Public Policy Foundation report titled “The Conservative Texas Budget,” outlines a series of smart policy recommendations and reforms to rectify Texas’s overspending problem that, while not as bad as that of some states, is still a major problem. One of those proposed reforms, the institution of clear and achievable spending limits, is the best step that lawmakers could take to protect Texas taxpayers.
I also write today to urge you to use the 2015 session to rid Texas of the margin tax. As you know, legislation, Senate Bill 105, has been filed that would do just that. The Lone Star State has been a model for other states on numerous matters of governance, and for good reason, but the margin tax is the one major blight on the state’s otherwise stellar business tax climate and now is the perfect time to unlock the state’s full economic potential by repealing this misguided tax.
The margin tax reduces the job-creating capacity of Texas businesses and does so in an incredibly onerous way at that. As the Texas chapter of the National Federation of Independent Businesses put it, the margin tax is "crippling the small and mid-sized businesses” throughout the state. In addition to the harm it does to employers, economists of all political stripes agree that it is one of the worst ways to raise revenue. Professor John Mikesell, an expert in public finance at Indiana University, has described the margin tax as a "badly designed business profits tax...combin[ing] all the problems of minimum income taxation in general—excess compliance and administrative cost, penalization of the unsuccessful business, undesirable incentive impacts, doubtful equity basis—with those of taxation according to gross receipts."
The tax is so complex – it applies variably to different industries and types of businesses – that the costs to comply with this levy for some employers are actually greater than their tax liability. One of the more egregious aspects of the margin tax is that it applies to companies without regard as to whether a profit was generated, meaning businesses that lost money can still end up having a margin tax liability.
A recent TPPF report found that, based on dynamic econometric modeling, eliminating the margin tax could result in a gain of $10.8 billion in new real personal income in the first year and a personal income boost of $16 billion in the first five years. The report also found that repealing the margin tax could generate an additional 129,200 jobs over the next five years. Texas is currently ranked as having the nation’s 10ths business tax climate the 3rd best in the country.
Other states are eager to compete with Texas for jobs. In fact, a number of states have passed tax reform in recent years that seeks to make them more competitive with Texas, and over a dozen are set to pursue such policies in 2015. It’s important for Texas lawmakers to not rest on their laurels. In order to stay ahead of states that wish to entice employers away from Texas, it would behoove legislators to repeal, or begin phasing out, the margin tax in 2015. It’s time to eliminate this unnecessary impediment to private sector growth and job creation. It’s also time to right the unsustainable trajectory of state spending, which can be accomplished with a robust spending cap, like the one proposed by TPPF.
When good ideas come out of Texas, such as smart criminal justice reform, it’s easier to take them elsewhere because other states rightfully want to emulate Texas. But that can cut both ways. For example, a Texas-style margin tax was on the Nevada ballot last year. The pro-margin tax campaign there basically had one talking point: “Texas has a margin tax, so it must be a good idea.” Fortunately Nevada voters were smart enough to reject that ballot measure. Killing the margin tax will be good for the Texas economy, but it will also make it less likely that such a damaging tax will be adopted elsewhere.
I urge you to use the 2015 session to give a boost to the Texas economy by getting rid of the margin tax. Americans for Tax Reform will continue to follow these issues closely throughout session and will be educating your constituents as to how you vote on these important matters. If you have any questions, please contact Patrick Gleason, s director of state affairs, at (202) 785-0266 or firstname.lastname@example.org.
President, Americans for Tax Reform
Tennessee Has Opportunity To Become A True No Income Tax State In 2015
Tennessee is smart to not tax wages. However, the state does have a tax investment income, known as The Hall Tax. Enacted in 1929 by then Tennessee Senator Frank Hall, the Hall Tax imposes a 6% levy on investment income. Senator Mark Green and Representative Charles Sargent have proposed legislation to repeal the Hall Tax and make Tennessee a true no income tax state. With other states, including many in the same region as Tennessee, moving to cut taxes and make their codes more competitive this year, it is important for Volunteer State legislators to make the most of the 2015 session by passing reforms to make the state as attractive as possible to investment, job creation, and retirees looking for a friendly place to settle down. The best way to do so is to get rid of the Hall Tax
Below is a copy of the letter Americans for Tax Reform sent to Tennessee Legislators, urging them to phase out the Hall Tax:
Dear Members of the Tennessee Legislature,
On behalf of Americans for Tax Reform and our supporters across Tennessee, I urge you to use the 2015 session to pass legislation that protects Tennessee taxpayers and fosters economic growth. After being hit with over 20 federal tax increases in recent years, it is imperative that state lawmakers stand up for Tennessee taxpayers.
One piece of legislation that does nothing to help taxpayers at all and should be rejected is Senate Bill 246, which would prohibit beer producers from owning distributorships except under very restricted and temporary circumstances. Legislation like SB 246 represents the classic case of government seeking to pick winners and losers. Passage of SB 246 would stifle investment and damage Tennessee’s reputation as a business-friendly state. The type of government meddling in legitimate private sector business transactions that would result from passage of SB 246 is the sort of thing one would expect to encounter in Illinois or California, not Tennessee. As such, I urge you to reject and vote “no” on SB 246.
A better use of time for lawmakers looking to benefit the state’s economy during the 2015 session is to pass legislation to phase out the six percent tax on dividend income, referred to as the Hall Tax. The non-partisan Tax Foundation released analysis showing how elimination of the Hall Tax would boost Tennessee’s economic competitiveness. Tennessee currently has the 15th best business tax climate in the nation. However, if lawmakers repeal the state’s tax on investment income, Tennessee would have the 11th best business tax climate in the nation.
The Hall Tax does far more damage than it’s worth, raising what amounts to less than one percent of state and local revenue. With average economic growth and modest spending restraint, lawmakers can easily cope with the Hall Tax’s elimination. It’s even more manageable when considering that proposals to eliminate the Hall Tax, such as those put forward by Senator Mark Green and Representative Charles Sargent, phase the tax out over a number of years.
Tax relief isn’t just good politics, it’s good policy. Tax Foundation economist William McBride reviewed academic literature going back three decades and found, "While there are a variety of methods and data sources, the results consistently point to significant negative effects of taxes on economic growth even after controlling for various other factors such as government spending, business cycle conditions and monetary policy."
In McBride's survey of 26 studies dating to 1983, he found "all but three of those studies, and every study in the last 15 years, find a negative effect of taxes on growth." John Hood, chairman of the John Locke Foundation, found that keeping state and local tax and regulatory burdens as low as possible fosters economic growth when he analyzed 681 peer-reviewed academic journal articles going back to 1990. "Most studies find," Hood discovered, "that lower levels of taxes and spending, less-intrusive regulation correlate with stronger economic performance."
Tennessee has lower taxes than most states, but that doesn’t mean lawmakers should rest on their laurels while other states in the region and across the country continue to propose and enact reforms that make their tax codes more competitive. As such, I urge you to use the 2015 session to make Tennessee a true no-income-tax state by beginning to phase out the Hall Tax and to reject onerous regulations, such as those that SB 246 would lead to. Americans for Tax Reform will continue to follow these issues closely throughout session and will be educating your constituents as to how you vote on these important matters. If you have any questions, please contact Patrick Gleason, ATR’s director of state affairs, at (202) 785-0266 or email@example.com.
ATR Urges Utah Lawmakers To Support House Bill 141
Last year the Utah Department of Insurance issued a ruling prohibiting small businesses across the state from utilizing the services of , a company that provides employers with a free online platform to manage human resources activities such as hiring, payroll, retirement plans, and health insurance. This behavior is highly unusual for a state that prides itself as a haven for innovative businesses, both small and large. Recognizing the direct damage this regulatory edict places on Utah's technology sector, Representative John Knotwell introduced House Bill 141 in the Utah House of Representatives. If passed, HB 141 would lift the ban on Zenefits and make clear that Utah supports innovative companies and technologies.
Below is a copy of the letter Americans for Tax Reform sent to Utah representatives urging them to support HB 141:
Dear Members of the Utah House of Representatives,
Utah currently has the dubious distinction of being the only state in the nation to ban an innovative new technology that provides tremendous benefits for small businesses. On behalf of Americans for Tax Reform and our supporters across Utah, I urge you to support and vote for House Bill 141, legislation introduced by Representative John Knotwell that would fix this problem and ensure Utah retains its reputation as a pro-business state that welcomes innovative companies and entrepreneurs.
Last year the Utah Department of Insurance issued a ruling prohibiting small businesses across the state from utilizing the services of Zenefits, a company that provides employers with a free online platform to manage human resources activities such as hiring, payroll, retirement plans, and health insurance.
20th century brick and mortar health insurance brokers, rather than try to compete, decided to instead get state regulators to shut down their innovative competition. Imagine if early in the 20th century, horse and buggy operators successfully shut down the emerging automobile industry. That might sound ridiculous but it is analogous to what the health insurance brokers got Utah regulators to do to Zenefits.
This situation represents a classic case of protectionism, in which entrenched actors in an industry use the heavy hand of government to shutdown competition. The result of this is less choice and higher costs for consumers. In the case of the Zenefits ban, the victims are Utah small businesses, the engines of job-creation, who are now needlessly deprived of easy-to-use technology that was reducing costs and increasing their job-creating capacity. Such a misguided ruling, aside from the economic harm it does to in-state employers, does great damage to Utah’s reputation as a business-friendly state that is attractive to high tech companies, entrepreneurs, and startups. HB 141 would reverse this damage and ensure Utah retains its status as a hub of commerce and innovation.
HB 141 would, if passed, lift the ban on Zenefits and make clear that Utah supports innovative companies and technologies. Passage of HB 141 would clarify a confusing law that does unnecessary harm to Utah small businesses. Lifting the ban on Zenefits will provide Utah employers with an easy-to-use online platform that reduces costs, thereby freeing up resources to invest in their businesses and hire more workers. As such, I urge you to support HB 141, legislation that is important to Utah’s economy and reputation.
Americans for Tax Reform will continue to follow this issue closely throughout the session and will be educating your constituents as to how you vote on this important matter. If you have any questions, please contact Patrick Gleason, ATR’s director of state affairs, at (202) 785-0266 or firstname.lastname@example.org.
President, Americans for Tax Reform
Americans for Tax Refrom Supports the Mississippi Taxpayer Pay Raise Act
In a new Forbes column, ATR's Patrick Gleason highlights a pro-growth tax reform proposal unveiled in Mississippi yesterday by Lt. Gov. Tate Reeves (R). Read Gleason's piece below to find out how Lt. Gov. Reeves' proposal, if approved by legislators, would make Mississippi more economically competitive, would increase the job-creating capacity of in-state employers, and would allow Mississippi taxpayers to keep more of their hard earned income.
By: Patrick M. Gleason
Today, Mississippi Lt. Gov. Tate Reeves (R) introduced a plan, dubbed the Taxpayer Pay Raise Act, that would reform the state’s tax code in a manner that makes the state more competitive, fosters economic growth, and allow individuals, families, and employers across Mississippi to keep more of their hard-earned taxpayer dollars. The plan is projected to save taxpayers $400 million per year once fully phased in.
One of the most pro-growth aspects of Lt. Gov. Reeves’ proposal is its phase out of the state’s franchise tax, one of the most economical damaging taxes a state could have on its books. David Brunori, professor of public policy at George Washington University and Forbes contributor, explains why franchise taxes are so harmful and even worse than traditional corporate taxes:
“The Mississippi tax is essentially a tax on capital. That is ludicrous in a global economy. Companies in Mississippi pay $2.50 per $1,000 of capital or property, whichever is greater. There is no limit. The more capital employed, the higher the tax.”