Like a lot of people this week, you might be sick of seeing your friends’ tweets and Facebook posts about the great time they are having at SXSW 2013, which is currently taking place in Austin, TX. However, the coolest thing going on in Austin right now (from ATR’s standpoint at least), is legislation at the Texas capitol that would eliminate the state margin tax, which, as ATR pointed out in a letter sent to TX legislators today, “is the one major blight on the state’s otherwise stellar business tax climate.”

With a reported $8 billion dollar budget surplus, now is the perfect time for legislators to unlock the Lone Star State’s full economic potential by repealing this onerous tax, which economists of all political stripes agree is one of the most economically harmful ways for a state to raise revenue.

See below for a copy of the letter ATR sent to all members of the Texas legislature in support of SB 113 & HB 607, legislation that would repeal the Texas margin tax: 

     "Dear Members of the Texas Legislature,

I write today to urge you to rid Texas of the margin tax during the 2013 legislative session by supporting SB 113 & HB 607, legislation introduced by Sen. Craig Estes & Rep. Scott Turner 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 for some employers to comply with this levy 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, Louisiana Gov. Bobby Jindal has put forward a tax reform plan that, if passed this year, would give your neighbors to the east essentially the same tax code as Texas, but with the advantage over the Lone Star State of not having a gross receipts tax. It is important for Texas lawmakers to not rest on their laurels. In order to stay of ahead of states that wish to entice employers away from Texas, it would behoove legislators in Austin to repeal the margin tax this year.

It’s time to eliminate this unnecessary impediment to private sector growth and job creation. Americans for Tax Reform will continue to follow this issue closely throughout session and will educate your constituents as to how you vote on this important matter. 


Grover Norquist"


To view a PDF copy of the letter, click here.