Be Bold Texas: A principled case for substantial franchise tax reform (Part I)
The final report of the TCCRI State Taxation Task Force
Co-Chairmen: State Senator Dan Patrick, State Senator Ken Paxton, and State Representative Jim Murphy
This report lays out the case for elimination of the franchise tax. Part II of this report (which is forthcoming) advocates for a transition
away from property taxes to consumption taxes to fund the maintenance and operations of public schools. That report will also make the case for a lower property tax appraisal cap or property tax revenue cap to provide homeowners and business owners with relief from inexorable appraisal growth. Taken together, these reforms would represent a substantial transformation of the state’s tax structure, and thus, the state economy.
The fundamental point is that Texas has an opportunity to make a bold fiscal move by eliminating a tax or by substantially reducing a tax. Precisely how this is to be achieved can be determined by policy makers; this report simply lays out a path forward and illustrates the economic benefit of starting down that path.
To that end, the state’s franchise tax and school district maintenance and operations (M&O) property tax must be the focus of tax relief efforts. By cutting taxes now, Texas can create substantial dynamic economic benefits that will pay dividends in the future, bringing increased economic activity:
If Texas cuts taxes right now, it will encourage all the more 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.
This report lays out the path to providing this kind of tax relief and illustrates the valid and defensible economic benefits of undertaking such an approach.
On behalf of TCCRI’s State Taxation and Revenue Task Force, the Beacon Hill Institute at Suffolk University undertook dynamic fiscal and economic analyses of eliminating or substantially reducing the franchise tax, and of transitioning from property taxes to consumption taxes to fund public schools.
As outlined in detail in this report, either one of these reforms would produce substantial economic benefits for the state by creating jobs, attracting higher levels of business investment, and increasing disposable personal income. These recommended reforms would also establish a more efficient and less punitive tax structure for the state.
Download the Be Bold Texas! Franchise Tax report
Also read the supplementary report by Dr. Byron Schlomach, Texas Franchise Tax: Out of Step, Out of Time
Other Be Bold Texas! items
The economic effects identified by the Beacon Hill Institute
Be Bold Texas Town Hall Meetings
Spring – December 5, 2012
Plano – December 7, 2012
Tyler – January 15, 2013
Houston – December 5, 2012
Garland – December 7, 2012
Irving – January 25, 2013