Kronberg: How inclusive is that business tax?

Political analyst and TSCPA pal Harvey Kronberg attended a Senate hearing on the Tax Reform Commission proposal yesterday and files the following report, reprinted from his Quorum Report with Harvey’s permission.

Senators hear numbers on how many businesses get picked up under new margins tax; Wolf suggests new ways of earning political tenure

Much of the recent speechifying on the failures of the current business franchise tax has focused on one statistic – one in 16.

That’s the number of Texas businesses that pay the current business tax. The plan currently being touted by John Sharp and his panel on tax reform would raise that figure … to one in eight.

The ratio was never said publicly at testimony Monday morning in the Senate Select Committee on Education Reform & Public School Finance, but the numbers thrown out at the meeting made it clear that most businesses in Texas still won’t pay the new business tax.

The new margins tax that would replace the franchise tax would roughly double the number of taxpaying businesses to 300,000, according to Sharp’s testimony. Overall, 2.4 million businesses operate in Texas.

Of course, what that paltry ratio really points out is the difficulty of using statements like "only one in 16 businesses pay the business tax" when making a political point. Most entities doing businesses in Texas are sole proprietors or general partners who have never and will never be included in the overall business tax structure.

And, as Sharp pointed out in his testimony, the real point of business tax reform isn’t as much how many new businesses have to pay but making sure the really big businesses pay their fair share. Under the Sharp Commission’s plan, 10,000 employers would shoulder 95 percent of the tax burden.

Senators are also waking up to the realization that under the Sharp plan, meaningful discretion has taken a turn. Gone are discussions of 15 cents of meaningful discretion that could be raised 5 cents at a time. Districts would now have the ability to raise 6 cents of Tier II revenue.

Senators were also told some drafting issues needed to be resolved, but the intent was to equalize the six cents in revenue at current yield levels.

Tax reform commission member Howard Wolf injected some politics into the morning’s hearing by suggesting that District Judge John Dietz, a Democrat, could gain a judgeship for life in Travis County by shutting down the public schools June 1.

He also said that he had heard that school districts were putting money away in anticipation of an injunction.

The comments appeared to annoy Sen. Royce West (D-Dallas) who testily asked Wolf what Dietz’s party affiliation had to do with anything.

Meanwhile, Paul Colbert, a lobbyist who represents El Paso ISD but was testifying solely on his own behalf Monday, told senators that the tax commission’s proposal would lead to disparities between rich and poor school districts.

He said the commission should have used common yield instead of a common tax rate to address property tax relief. Otherwise, the commission is disregarding what the court has said on equity, "which is, equity is equal yield for equal effort."

Colbert said he brought up the issue with the commission, but he said he never got any traction on it. James LeBas, the commission’s director of financial analysis, pointed out that the state’s buy down of the property tax was not aid to school districts but simply reimbursing districts for the revenue they would have received if the tax rate had not changed.

"To us, it’s a hold harmless," he said.

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2 Responses to Kronberg: How inclusive is that business tax?

  1. Linda Messing says:

    I believe the thinking is that business has heretofore *not* been taxed as much as individual property-owners. One frequently hears the phrase “free ride” with respect to Big Business and the franchise tax in particular, the implication being that large corporations are using franchise tax loopholes at the expense of Texas homeowners. The consensus you notice is that business should pay its fair share of the tax burden … and truth be told, Big Business hasn’t much disagreed with the sentiment.

  2. Lois Kapp says:

    I don’t understand why the consensus that the new tax should be a business tax. For most of us, the income from our business is our income. Why isn’t this new tax seen as an income tax on the selected few who have chosen to be in business and contribute jobs to the economy of the State, at personal risk. Why this insistence that business pay the fare for Texas property relief?

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