There’s a battle brewing among state officials in Texas.
Though many battles are cast in a negative light, this fight over providing the most tax relief among the governor, Senate leaders and House leaders benefits Texans.
Given the potential $7.5 billion surplus this budget period and billions more available during the next, the 84th Texas Legislature has an opportune moment in the state’s history to solidify Texas as the leader in America — and the world — for her tax environment.
A Texas Public Policy Foundation study finds that the best way they can do this is to use most of the money to eliminate the state’s burdensome business margin tax due to the prosperity it would unleash.
Adding to these findings, excessive local property taxes could be permanently restrained if legislation passed requiring local voters to approve local property tax revenues that exceed the lower of 5 percent or population growth plus inflation.
The initial signs from state officials’ desire to provide business and property tax relief, creating a more ideal tax environment that funds the needs of Texans at the least cost, are encouraging.
Gov. Greg Abbott came out swinging in his first State of the State speech by recommending $4.5 billion in tax relief with $2.2 billion to lower local property taxes, $2 billion in margin tax relief, and another $268 million towards ending collection of dedicated taxes and fees.
And as a roadmap for legislators, he said he would not sign a budget excluding business tax relief.
Topping the governor’s total, the Texas Senate led by Lt. Gov. Dan Patrick and Senate Finance Committee Chair Jane Nelson filed bills including $4.6 billion in tax relief with $2.5 billion towards lowering school property taxes and $2.1 billion for reducing the margin tax burden.
Though the Texas House didn’t include tax cuts in their introduced budget, Speaker Joe Straus and Ways and Means Committee Chair Rep. Dennis Bonnen stated recently that they have substantial room left for tax relief without providing specifics yet.
The battle over who can cut taxes more will be challenging given that this will also mean they must effectively limit spending. That’s why it’s crucial for the Legislature to consider reforming the state’s weak spending limit, for which Governor Abbott outlined key reforms in his speech and Sen. Craig Estes filed SB 361 strengthening the spending limit.
After being good stewards of taxpayer dollars, the Legislature should have sufficient funds to provide permanent tax relief that boosts the Texas economy by repealing the margin tax.
The foundation supports the efforts to provide property and margin tax relief. Legislators should avoid the 2006 fiasco that created the margin tax to lower local property taxes that lasted at most two years. Instead, the focus should be on long-lasting tax relief accomplished by repealing the margin tax and putting measures in place to reduce local property taxes until they can be completely eliminated.
With many states and D.C. on the brink of an irreversible path toward bloated government that stifles economic opportunity, Texas is the last bastion of freedom where liberty proves its case. This will be solidified by making the margin tax extinct.
Ginn is an economist in the Center for Fiscal Policy at the Texas Public Policy Foundation.