AUSTIN, Texas – Even as lawmakers are poised to adopt a new state budget without a tax hike, some are looking to raise taxes in a move that could threaten Texas’ economic viability.
Under legislation approved by the Senate Finance Committee, the tax burden on many Texas businesses – and therefore business owners, employees and consumers – would rise. The Senate committee amended HB2425 to impose a franchise, or corporate income, tax on a great many partnerships and trusts not currently subject to it. Additionally, many currently paying the franchise tax would see an increase as the Senate language denies deductions for some previously-accepted business expenses.
“With our economy struggling to gain traction, now is the wrong time to hinder economic progress and increase the cost of doing business in Texas,” said Brooke Leslie Rollins, president of the Texas Public Policy Foundation. “While some paint this action as ‘closing a loophole’ in state law, there really is no loophole to close. The state has made it long-standing policy to not tax partnerships; the Senate amendment does so, taxing businesses and activities that had not been.”
Rollins said that while some might feel it is “easy” to levy taxes on businesses, elected officials need to remember it is the consumer and employee who ultimately pay the price.
“Whether the tax is levied directly on the individual, or passed through as a higher cost of doing business, it is still a tax increase on the individual,” said Rollins. “Worse, by making it more expensive to do business in Texas, we will lose a critical economic edge in promoting job growth and expanding opportunities. In a session that has seen a renewed emphasis on economic development, this new tax would send a contradictory message to businesses looking to grow in Texas, while discouraging new investment.”
Last year the Foundation published an extensive six-part series “Taxing Texans” that examined the state’s sources of revenue. The study was performed by Richard Vedder, Ph.D., an internationally acclaimed economist who served on the Joint Economic Committee of Congress.
“Corporate income taxes have an adverse effect on the growth of total personal income over time,” Vedder found. “Texas’ policy of having relatively low corporate taxes [is] a pro-development move.”
As the Senate considers the legislation, Rollins said all tax and spending measures must be reviewed for their impact on economic development.
“We cannot risk the loss of long-term investment in Texas’ economy for the short-term ‘bump’ of additional tax revenue,” she concluded. “Texans cannot afford more taxes.”
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