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Rep. Riddle on Margin’s Tax

June 12, 2008

While browsing the blogs today (Thursday, June 05), I found myself lingering over Jason Embry’s “Postcards from the Lege” regarding the state’s margins tax.  His overall assessment of the attitudes regarding the margins tax were generally right on.  He did, however, breeze straight through a point I think could use a little more discussion.  He wrote “in the end, the plan was a net tax cut, because it cut more money in property taxes than it was projected to raise.”

True, the Texas Tax Reform Commission made all kinds of claims about the vast savings  both businesses and citizens would realize under this new, magical margins tax when it was pressed upon legislators in 2007.  But even in the midst of the campaign to earn votes for the plan, legislators like myself, who opposed the tax from its inception, knew the estimates were inaccurate and the rhetoric was skewed. 

The state never had in mind a goal of achieving a net tax cut, because that would mean that the state would have less to spend.  In fact, lawmakers created two other taxes, the cigarette tax and the motor-vehicle tax, just to make sure we didn’t create a deficit.  Despite repeated promises from the Commission that most businesses would somehow end up paying less while the state would end up reaping more, the math never made sense.  All the while, we were sitting on top of an $8 billion surplus with only $6 billion needed to pay for property tax reductions. Yet the legislature chose to create new taxes rather than giving back what the state had overcharged. 

Now, with ten days left before businesses have to write a check for their new taxes, it’s obvious that someone in the state has to be seeing a huge net tax increase.  The comptroller estimates that this new margins tax is going to generate $11.9 billion dollars, more than twice what the old franchise tax would have generated. 

So whose footing the bill?  Not the big corporations who were exploiting the loopholes in the old franchise tax.  This time around, it’s small business owners, who make up 97 percent of the all the businesses in Texas.  Recent surveys by the National Federation of Independent Business indicate that as much as 84 percent  of small business owners are going to see their tax burden increase by more than 100 percent, and more than 40 percent of those who saw an increase in their state tax liability will now face an increase of more than 500 percent over their previous bill.   

But businesses will see a huge reduction in property taxes, right?  Doesn’t look like it.  In Harris County alone last year, commercial appraisals were up more than 30 percent, already wiping out any supposed savings from the tax-swap.  Dallas County reports increases of more than 20 percent.  In Travis County, as reported by the Statesman, commercial appraisals are up almost 10 percent.  No net reductions to be found there.  Just more fuel added to a Texas-size tax-and-spend machine.

With an overall budget of more than $160 billion and surpluses that constantly hover in the tens of billions of dollars, Texas has had every opportunity to create real net tax cuts for both our small  businesses and our private citizens by identifying government waste and reducing how much the state spends.  Instead, the legislature has chosen to single out the very backbone of our economy, the small businessperson, and ask them to give 500 percent more than they are already contributing to state coffers.  If we don’t see the error of this new tax and take steps to fix it, or better yet, repeal it altogether, there won’t be any small businesses left to tax. 

 

Debbie Riddle

State Representative

District 150

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