In Harris County alone, there are now six separate crime control districts, each levying separate sales and use taxes, as well as countless other special taxing entities. Illustratively, a resident of Bellaire will pay sales taxes to the state, as well to the City of Houston and the Houston Metropolitan Transit Authority. On top of this, they will pay property taxes to the Houston Independent School District, Harris County, the Harris County Flood Control District, the Department of Education, the Houston Community College District, and the City of Houston itself. Taxpayers across the Harris County area are faced with a similarly complex web of taxing entities.
The actual liabilities of the federal government—including Social Security, Medicare, and federal employees' future retirement benefits—already exceed $86.8 trillion, or 550% of GDP
Over the past decade or more, school district property taxes in particular have proven to be an intractable problem. They are responsible for endless cycles of school finance litigation and they obscure meaningful debate about the appropriate levels of funding for our public schools. With serious attention likely to be given to school finance issues in the 2013 and 2015 legislative sessions, beginning the shift away from school district property taxes is a realistic proposition.The benefits of shifting away from property taxes are multitudinous, especially for encouraging and maintaining homeownership and fostering increased economic development particularly in capital intensive industries. With our economy and social structures so fundamentally different from when property taxes were first imposed in the 19th Century, the system can and must change.
Be Bold Texas! Tax Presentation
Be Bold Texas!Through a series of “Be Bold Texas!” Town Hall Meetings, TCCRI and conservative state legislators are getting feedback from Texans on potential tax policies that wouldcreate thousands of jobs. We want your feedback on these potential policy options.
We’re good “The Texas Tribune reported that the state has hit a two-year mark of consistent job growth. Its an achievement worth noting while manystates are hampered with liberal unions and policies that stifle jobs. Texan conservative governing policies have continued to show results.” - TheExaminer.com, August 18, 2012.
Compared toCalifornia, Texasis #1, but thecomparisonmisses the point:Texas is notabsolutely betterthan all states.
Room for improvement… Texas’ rank in several important categories: Texas’ Most Study Recent Ranking Mercatus Center, Economic Freedom 14 Council on State Taxation, Tax on New Investment 20 Journal Sentinel, Tax per Capita 16 Sales Tax Clearinghouse, Sales Tax Burden 40Minnesota Taxpayers’ Association, Residential Property Tax 37 Minnesota Taxpayers’ Association, Business Property Tax 44 American Legislative Exchange Council, Economic Outlook 16
Texas Should Strive to Be Absolutely Better than Other States
Why take on taxes?“If Texas cuts taxes right now, it will encourage all themore business and entrepreneurship, on top of what has already occurred, without jeopardizing current governmental operations. Indeed, a virtuous circle will unfold in which tax cuts make the state ever more attractive, generating receipts that can bring about yet another tax cut down the line.” - Prof. Brian Domitrovic, Forbes Magazine, July 31, 2012.
Why take on taxes?• Create jobs• Increase growth• Increase disposable income• Reduce the reach of government• Washington is a mess: Texas must be a low tax, low debt oasis.
Washington is a Mess: National Debt: $15.96 trillion FederalSpending and Revenue 1965 - 2012:
Washington is a Mess; Texas Must Be Bold: While Washington continues towardgreater debt, taxes, and regulation Texas must be the low-tax, jobs leader.
The Franchise TaxBackground: • The revised Franchise Tax was created to generate “new state revenue that could be used to reduce school property taxes” and to provide “a stable and predictable stream of revenue.” House Research Organization analysis of HB3, 79S3 (2006). • The Franchise Tax accounts for just 4.2% of all funds collected by the State. Less than the revenue lost from the Business & Professional Services Sales Tax Exclusions.Problems: • The states franchise tax on businesses is unavoidably complex, with businesses having a multitude of ways to calculate their liability and unclear rules pertaining to what can be deducted in calculating tax liability. • The Franchise Tax has consistently failed to serve its purpose, falling $4.3 billion short of projections and providing $4.1 billion less property tax relief than projected. • The franchise tax, a direct tax on business activity, discourages business formation and growth.
How the franchise tax works:A business that is required to pay the Gross Margins Tax must calculate its “taxable margin,” which is the lesser of:• Total revenue (gross receipts) minus the cost of goods sold;or• Total revenue minus cost minus compensation (exceptcontract labor costs); or• Total revenue multiplied by 70 percent.The tax is levied on gross receipts at a rate of 1%, althoughbusinesses primarily engaged in retail or wholesale are taxedat 0.5%
The Franchise Tax has: …failed to consistently generate revenue as projected:Biennium Comptroller’s Franchise Actual Franchise Tax Difference Tax Biennial Projection Revenue2008-09 $11.9 billion $8.7 billion ($3.2 billion)2010-11 $8.9 billion $7.8 billion ($1.1 billion)…failed to consistently generate revenue for property tax relief:Biennium Comptroller’s Projection Actual Property Tax Difference of Franchise Tax Revenue Relief Fund Revenue for Property Tax Relief from Franchise Tax2008-09 $6.1 billion $3.1 billion ($3.0 billion)2010-11 $3.6 billion $2.5 billion ($1.1 billion) Source: Comptroller of Public Accounts
“With the Texas margin tax collecting far less in revenue than expected, causing significant confusion and compliance costs, resulting in significant litigation and controversy over ‘cost of goods sold’ definitions, and facing calls forsubstantial overhaul and even repeal, it should not be used as a model tax reform for any other state.” - Joseph Henchman, The Tax Foundation
Limit Direct Business TaxesOptions for limiting business taxes: • Eliminate the state business tax • Cut rates across-the-board by 50%Benefits: • Make Texas distinct from the rest of the nation. • Encourage capital investment and job creation.
Limit Property Taxes“All of our freedoms as Texans andAmericans flow from our ability as individuals to own property.”- Rep. Lois Kolkhorst, House Journal statement on House Bill 3 (79S3, 2006).
Limit Property TaxesBackground: • Texas has the third highest property tax burden in the country.Problems: • Property taxes undermine private property rights. • Property taxes increase the cost of homeownership. • The property tax is punitive to capital intensive industries. • Property taxation is administratively burdensome. • It’s an antiquated, 19th Century tax.
Limit Property Taxes Typical property tax bills equate to a significant portion of household income:County Total Av. Home Av. Property Median Av. Property Property Value Tax Bill Household Tax as % of tax Rate Income Household IncomeCollin 2.50% $199,000 $4,975 $80,504 6.2%Harris 2.34% $131,700 $3,082 $51,444 6.0%Travis 2.38% Collin,$200,300 County Central Appraisal Districts, US Census Bureau. 8.8% Source: Harris, and Travis $4,767 $54,074
Limit Property TaxesWith the current 10% cap, a $5,000 tax bill today could be$86,000 per year in 30 years, without any rate increases: Year Age of Tax Bill Property Owner 2003 35 $5,000 2010 43 $10,718 2017 50 $21,436 2025 58 $42,872 2032 65 $85,744
Limit Property TaxesOptions for limiting property taxes: • Lower the appraisal cap to 2% (from 10%) • Enact a revenue cap (2.5% / year)Benefits: • Affirm private property rights; stop Texans from being taxed out of their homes. • Encourage capital investment and job creation.
Limit Property Taxes A 2% appraisal cap provides much greater protectionfor homeowners: Year Tax Bill 2% Cap 10% Cap 2012 $5,000 +$100 +$500.00 2013 $5,100 +$102 +$550.00 2014 $5,202 +$104 +$605.00 2015 $5,306 +$106 +$665.50 2016 $5,412 +$108 +$732.05 2017 $5,630 +$110 +$805.25 2018 $5,743 +$113 +$885.78 2019 $5,858 +$115 +$974.36 2020 $5,975
Property Tax Revenue Cap• “Proposition 2.5 has had marked effects on property taxes in Massachusetts. From 1980 to 2007, property taxes per capita rose 22 percent in Massachusetts, while they rose 102 percent in New Jersey and 62 percent in the country as a whole (all figures based on constant 2007 dollars).” - Josh Barro, Manhattan Institute, Do Property Tax Caps Work, May 2010
Be Bold Texas!• Transformation is necessary - There are simply too many taxes imposed by too many taxing entities, and the tax take is simply too much.• The crisis is at hand. - With Washington in financial disorder and new higher and higher taxes coming, we must act now.• Be Bold - Especially since we know what works: Tax Reform will create more jobs and increase income
Be Bold Texas!Comprehensive data andanalysis, along with a fullreport, will be published soonat txccri.org.