Texas Capitol 2

Many say that as Texas goes, so goes the nation, and there is some data to back that up, at least from an economic standpoint. Were it not for Texas, national job growth in recent years would not look so hot. As Vance Ginn, Economist at the Texas Public Policy Foundation’s Center for Fiscal Policy pointed out in Investors Business Daily, “excluding the 1.1 million jobs added in Texas since the last recession started in December 2007, the rest of the U.S. employs about 350,000 fewer people than its pre-recession level.”

With an important 2015 biennial session of the Texas legislature fast approaching, Americans for Tax reform sent a letter to members of the Texas legislature this week urging them to take important steps to protect Texas taxpayers and further spur economic growth. The letter ATR sent to Texas legislators is as follows:

Dear Returning and New Members of the Texas Legislature,

As you prepare to return to the state capitol for the 2015 legislative session, on behalf of Americans for Tax Reform and our membership across the Lone Star State, I urge you to keep taxpayers in mind as you consider all the pieces of legislation that will come across your desk. 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, one of the biggest blemishes on what is an otherwise relatively competitive tax code.

As was noted in Forbes earlier this year, even relatively-well governed states like Texas face significant fiscal challenges. In a Texas Public Policy Foundation report titled “The Real Texas Budget,” TPPF researchers found an incomplete comparison in state spending data published by the Legislative Budget Board, the state’s official keeper of budget information. According to the report’s findings, the Texas budget – when adjusting for moving patient income to higher education-related facilities off-budget and the projected underfunded Medicaid amount – actually increased by nine percent in the current 2014-2015 biennium from the previous, as opposed to the more modest five percent increase advertised by the state’s official scorekeeper.

Another TPPF report titled “The Conservative Texas Budget,” outlines a series of 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 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 rid Texas of the margin tax during the 2015 legislative session. Legislation was recently filed by Sen. Craig Estes 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 that businesses that lost money can still end up having a margin tax liability.

Other states are eager to compete with Texas for jobs and the state stands to fall behind if the margin tax is not repealed. 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 tax reform 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.

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 protected].

 

Onward,

Grover Norquist