Vance Ginn Economics
  • Home
  • About
  • CV
  • Media
  • Blog
  • Research
  • Teaching
    • ECON 2301-Princ of Macro
    • ECON 2302-Princ of Micro
    • ECON 3352-Energy Eco
  • Home
  • About
  • CV
  • Media
  • Blog
  • Research
  • Teaching
    • ECON 2301-Princ of Macro
    • ECON 2302-Princ of Micro
    • ECON 3352-Energy Eco

TEXAS' BUSINESS MARGIN TAX FAILS AS GOOD PUBLIC POLICY

12/28/2015

 
This commentary originally appeared in the Austin American-Statesman on December 28, 2015.

Businesses don’t pay taxes; people do in the form of higher prices, lower wages, and fewer jobs available. Given that taxes exist to fund essential government services, conservative budgets must be funded with the least burdensome taxes. No matter how you evaluate Texas’ business franchise tax, commonly called the margin tax, it fails this test and should be eliminated.

Gov. Greg Abbott lit the torch last session by saying that he wouldn’t sign a budget without business tax relief. Conservative legislators carried this torch by debating how much to cut in taxes rather than the typical discussion of how to spend every dime.

These actions led to a generous 25 percent reduction in the margin tax that begins on Jan. 1 for a total cut of about $2.6 billion. This not only has the effect of reducing the size of government, but employers will also have more money to invest in Texas’ future to boost the slowing job market.

Although this may have been the appropriate cut given the initial state revenue estimate during the current budget period, which has since been revised lower as oil prices remain subdued, elected officials shouldn’t take their eyes off the ball. The recent Texas Public Policy Foundation report Failure of Texas’ Business Margin Tax outlines how this tax is bad public policy and must be eliminated for Texans to reach their full potential.

Problems with the margin tax are numerous. Since the margin tax’s inception in January 2008, the Texas comptroller’s office has had difficulty accurately estimating its revenue as noted by the cumulative $2.8 billion less in actual collections than estimated. In addition, the comptroller’s analysis shows that it disproportionately burdens lower income Texans as they pay more of it as a percent of their total household income than other income groups.

Ask employers about the margin tax. They’ll tell you that the compliance cost can often be more than their tax bill. Their first $1 million in revenue is exempt, which benefits some small businesses, but many surpass that quickly. They then must determine their tax base from multiple taxable margins dependent on their gross revenue and then multiply that base by different rates to get their tax owed.

While employers may choose the cheapest option after spending countless hours and dollars on determining their tax bill, it’s made more difficult because the calculations are substantially different than for the federal corporate income tax. To comply with the complexity and both tax codes, accountants are paid vast sums to keep track of multiple financial books.

There are many difficult decisions that employers make every day to remain profitable. Dealing with such an onerous tax shouldn’t be one of them.

Imagine that you have to keep two sets of financial books for your household. One book is more complex to track of, and both are a headache that requires you to sacrifice time with your family and more productive activities. If you had the opportunity, you would surely eliminate the more complex book to ease your stress.

Phasing out the margin tax over four years with certainty it will be eliminated and not replaced with another tax is a good option. A combination of potential budget surpluses, increased tax revenue from economic growth and modest restraint on spending increases would offset state revenue.

Studies show that eliminating this tax would boost job creation and economic prosperity. It would also increase the state’s competitiveness as Texas would be one of only three states to not have a personal income tax or general business tax.

Legislators should build on last session’s progress by considering a path to eliminating the margin tax for a brighter Texas.

http://www.texaspolicy.com/blog/detail/texas-business-margin-tax-fails-as-good-public-policy

Comments are closed.

    Vance Ginn, Ph.D.
    Chief Economist
    ​TPPF
    ​#LetPeopleProsper

    Dr. Ginn is a free-market, classical liberal economist with  a passion for providing abundant opportunities for people to prosper, which includes promoting policy rules and removing government barriers.

    He grew up in South Houston, Texas where he attended private school, public school and home school, was a hard rock drummer, and was a first generation college graduate from Texas Tech University.

    Dr. Ginn's a recovering academic and a public policy nerd. 

    Follow me on Twitter: @vanceginn. 

    View my profile on LinkedIn

    Archives

    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    July 2017
    June 2017
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016
    November 2016
    October 2016
    September 2016
    August 2016
    July 2016
    June 2016
    May 2016
    April 2016
    March 2016
    February 2016
    January 2016
    December 2015
    November 2015
    October 2015
    September 2015
    August 2015
    January 2015
    November 2013
    September 2013
    May 2013
    February 2013
    August 2012
    July 2012
    January 2012
    May 2011
    April 2011

    Categories

    All
    Book Reviews
    Budgets
    Carbon Tax
    Congress
    COVID
    Debt
    Economic Freedom
    Economic Prosperity
    Education
    Energy Markets
    Free Trade
    Ginn Economic Brief
    Healthcare
    Immigration
    Interview
    Jobs Report
    Let People Prosper
    Licensing
    Margin Tax
    Medicaid
    Minimum Wage
    Occupational Licensing
    Pensions
    Podcast
    Property Taxes
    Regulation
    School Choice
    Spending Limits
    Tax Foundation
    Texas
    Transparency
    Video
    White House

    RSS Feed

Proudly powered by Weebly