By William Wang

Texas Governor Greg Abbott recently signed a historic $4 billion tax and fee relief package that he said was aimed at achieving a “new era of job growth.” 

This package included the following:

  • House Bill 32 permanently cuts the business franchise tax rates by 25 percent and increases the revenue cap to file a simplified form to $20 million at a lower 0.331 percent tax rate for a total value of $2.6 billion.
    • Estimates show this could save businesses, on average, $10,000 per year, translating into lower prices, higher wages, and more jobs for Texans.
  • Senate Bill 1 has a value of $1.2 billion in property tax relief by raising the $15,000 homestead exemption for school districts by $10,000 if voters approve the ballot initiative in November.
    • Estimates show this could save homeowners, on average, $126 per year.
  • House Bill 7 adds more than $200 million in fee reductions by eliminating occupational licensing to more than 600,000 Texas professionals.
  • Senate Bill 1760 increases transparency to hold local governing bodies more accountable to voters and raises the threshold to raise property tax rates above the effective rate to a 60 percent supermajority vote.

TPPF has long recognized the economic burden of the franchise and local property taxes. The Texas Public Policy Foundation finds in relevant research that those taxes on capital, such as the franchise tax and property taxes, must be phased out and ultimately eliminated.

The franchise tax burdens businesses by it being a gross receipts-type tax that requires them to pay taxes even if they lose money. Texas, which ranked 17th nationwide in corporate income tax ranking in 2007 according to the Tax Foundation, shifted dramatically to 42nd in 2008 when the franchise tax took effect. In the years following 2008, the state’s competitiveness ranking has been fluctuating but remains relatively high. The Tax Foundation finds Texas could rank 1st if it eliminated this onerous tax.

Texas’ Corporate Tax Ranking Fell Substantially from the
Revised Franchise Tax in 2008 but Could Rank First after Elimination

State Ranking (1 = Best, 50 = Worst)

Note: Tax Foundation rankings each year with the * indicating potential rankings after franchise tax repeal

Property taxes are disconnected from the amount levied and a property owner’s ability to pay. The value of the property being taxed may not represent the market value, as it is based on a subjective value by a tax appraiser, potentially causing an incorrect tax liability.

The subjective increase in a property’s appraisal may raise property taxes quickly outstripping the owner’s ability to pay, causing serious financial crises for homeowners, especially those on fixed income and the poor. While these measures signed by the governor may not address all these concerns, which can only be done by abolishing property taxes so homeowners can finally own their home instead of paying rent in perpetuity to the government, this is a step in the right direction.

It is not late to correct our mistakes. Texas grew at the 2nd fastest pace in economic output nationwide last year even with these property tax and franchise tax burdens. With this historic tax and fee relief package, Texas will further attract both businesses and workers to contribute to a brighter future.