Texas is the economic and fiscal envy of much of the nation thanks in large part to its business-friendly tax climate and relatively low tax and regulatory burden. In fact, of the 102 major metropolitan areas in the U.S., only 14 have added jobs on net since the recession began in December 2007. Of those 14, 6 Texas metropolitan areas are in the top 8. However, Texas has one major blemish policy-wise that is preventing the Lone Star State from realizing its full potential: the margins tax.

The margins tax is a burdensome and complicated tax that is levied on employers in the state. Enacted by the legislature in 2006, the margins tax has significantly diminished the competitive advantage that Texas companies have over their out-of-state competitors. Worse, for all the economic harm the margins tax does, it generates relatively little revenue for state government coffers. As the Texas Public Policy Foundation documented in a recent report, the margins has led to higher tax bills and administrative costs that reduce the job-creating capacity of employers across the state.

Fortunately there is recognition of this problem in the legislature, where Senator Craig Estes (R-30) has filed legislation to eliminate the margins tax completely, phasing it out over a 7-10 year period. Senator Estes has been very articulate in explaining why this tax needs to go, describing it as a tax that is “inequitable, costly, and complicated for Texas businesses and has undermined the state’s competitive advantage”.

With Texas Comptroller Susan Combs projecting surpluses for the current and coming fiscal years, now is the perfect time to do away with the margins tax. Also, with Gov. Bobby Jindal, looking to repeal neighboring Louisiana’s personal and corporate income taxes this year, it’s imperative that Texas get rid of its onerous margins tax to keep Texas competitive regionally, nationally, and globally. 

ATR fully supports Senator Estes's margins tax repeal bill and will be following this issue very closely during the 2013 session of the Texas legislature.