Margin Tax is Holding Back Texas Economy

by Jerome Greener

Source: Ft. Worth Star-Telegram

It’s no secret that Texas’ economy is booming — we’re the economic envy of the country. But what if I told you that we could be doing even better?

That’s absolutely true. In 2014, the Tax Foundation ranked Texas’ business tax climate the 38th worst in the country.

This hurts our economy in a number of ways. Most obviously, a poor tax climate dissuades businesses from relocating to our state.

It also encourages first-time entrepreneurs to look elsewhere when opening up shop. And finally, when businesses have to pay more in taxes, they pass the increased cost on to you and me through higher prices, fewer jobs and lower wages.

It’s time for our state legislators to start moving Texas up the list. The first thing they should do: Repeal our state’s franchise tax, often called the margin tax, which gives companies the “privilege” of operating in our state.

Legislators are already taking steps in this direction. House Ways and Means Chairman Dennis Bonnen has proposed a bill that would reduce the tax rate by 25 percent.

The Senate, led by Lt. Gov. Dan Patrick, has passed a measure that includes a 15 percent cut. It raises the exemption from $1 million to $4 million so that businesses making under that amount are exempt from paying the tax.

The Senate also included a study to examine eliminating the tax altogether.

Neither bill goes far enough. No business, big or small, should be forced to pay this tax — it holds back the growth that leads to more jobs and bigger paychecks.

Small businesses in particular suffer under it. Even those businesses under the million-dollar threshold still have to commit time and resources filing paperwork to prove they don’t owe the tax.

As for the businesses above that threshold, they’re paying the tax and losing out on growth opportunities. Even businesses that don’t make a profit could be subject to paying this tax.

If the margin tax is repealed, more businesses will want to invest in Texas.

A study by the National Center for Policy Analysis estimated that new business investments in Texas would increase to more than $3 billion by 2017.

When businesses invest, it directly translates into more jobs and higher incomes.

A Texas Public Policy Foundation study found that if the tax were repealed, almost 68,000 new jobs would be created after just one year and 130,000 within five years.

And professors at the University of Texas at San Antonio found that if the margin tax had never been created, personal income among all Texans would have increased more than $46 billion.

Middle-class families would gain the most from personal income growth. While the state of Texas is pulling in multibillion-dollar surpluses, there are Texans looking for a job to support their families and put food on the table.

Furthermore, tax revenues are growing faster than the economy.

As highlighted by the Texas Conservative Coalition Research Institute, tax revenues in 2014 grew by 6.7 percent while our economy grew by only 3.7 percent. Lawmakers need to reverse this trend.

The Senate has passed its plan and deserves credit for setting the bar high and starting this important debate. Now all eyes are on the House.

Bonnen’s plan is ambitious and also deserves credit. However, neither tax package proposal repeals this burdensome tax.

If legislators aren’t willing to repeal the tax, they should make the largest cut possible and provide a mechanism that puts the tax on a pathway to elimination.

In the wake of the Senate’s action, House members have their own opportunity to demonstrate fiscal leadership by taking steps to end this tax once and for all.

Despite Bonnen’s strong support for cutting the margin tax, it must still pass out of committee and be debated and adopted by the full House.

By repealing the margin tax, the Legislature can make our economy even stronger.