The Texas state legislature convened its biennial session in in Austin this month. While much of the action in the legislature won’t commence until February, lawmakers approved rules this week that institute important taxpayer safeguards and will ensure a more productive session.
In past years, the Texas Senate has had a two-thirds vote requirement for a bill to even be receive floor consideration. This week the Texas Senate approved a rule that changes the threshold to a three-fifths vote, a reform that recently-sworn in Lt. Gov. Dan Patrick, who presides over the Texas Senate, ran on during his 2014 campaign. This change is important because no longer can a small minority in the Texas Senate block reforms that the majority of Texans agree on, such as expansion of second amendment rights, tax reform, and school choice legislation.
Other new rules championed by Senator Van Taylor (R-Plano) will provide further taxpayer protections. One of Senator Taylor’s proposals that is now in place requires all revenue bills originate in the Texas House. This will improve transparency because the House has a rule that every bill must advertise right at the beginning whether it raises taxes. This “Truth in Taxation” rule was actually proposed and implemented by Senator Taylor when he was a member of the House in 2013. Taylor’s rule reads as follows:
"A house bill that would impose, authorize, increase, or change the rate or amount of a tax, assessment, surcharge, or fee must include a short statement at the end of its title or caption indicating the general effect of the bill on the tax, assessment, surcharge, or fee, such as 'imposing a tax (or assessment),' 'authorizing a surcharge (or fee),' or 'increasing the rate (or amount) of a tax.'"
Taylor’s “Truth in Taxation” rule sparked intense opposition from those in Austin who were used to tucking tax raising provisions deep into lengthy bills where they could go unnoticed. As Senator Taylor and Americans for Tax Reform president Grover Norquist explained in a coauthored USA Today op-ed, “Lobbyists who work for bigger government and thrive off an opaque legislative process yelled the loudest of all. After all, how could they hide their taxes and fees on line 14, page 21, of a 30 page bill if all bills were required to advertise their true fiscal impact in the first line?”
Sen. Taylor explains that subsequent to the passage of his "Truth In Taxation" rule in the House, “hundreds of bills required amendments to reflect what they really did to the taxpayer. Legislators scrambled to re-file bills either by taking out the fee or tax or by changing the first line of the bill to explicitly state that a fee or tax is created or raised by the bill.”
Another beneficial rule introduced by Sen. Taylor that was approved this week is a requirement that all constitutional amendments must undergo a full floor debate. This will ensure an open and full debate over any proposals to amend the Texas Constitution. “Because of these rule changes Texas has effectively removed one of the oldest tricks in the big-spenders playbook and given the people another tool to hold their elected officials accountable,” said Taylor.
Now the task at hand for Texas legislators is to use the 2015 session to not rest on their laurels and to take action to make sure that they will continue to lead the nation when it comes to pro-growth and economically sound tax policies. The best way to do this is by getting rid of the Margin Tax, the most harmful provision in the state tax code that imposes an incredibly complex levy on the gross receipts of Texas employers.
One of the worst aspects of the Texas margin tax is that businesses that lose money can still have a tax liability, since the tax applies to total revenue and not net profits. The non-partisan Tax Foundation highlighted other problems with this tax in a recent report, such as the fact that “The Margin Tax creates tax pyramiding, the process of taxes stacking on top of other taxes as a product moves through the production chain,” and that it has attracted many lawsuits. Highlighting the positive economic benefits of getting rid of The Margin Tax, were it repealed, Texas’s ranking on the annual Business Tax Climate Index would improve from 10th to 3rd best in the country.
Economists of all political stripes agree that gross receipts taxes are one of the most economically damaging forms of taxation. One report finds that repeal of the Margin Tax would lead to the creation of over 45,000 new jobs in the Lone Star State, along with $3.4 billion in additional investment, along with an increase of $9.8 billion in disposable income over four years. Only three other states have a gross receipts-style tax similar to Texas’s. A handful of states have repealed such taxes over the last decade and a half. Texas lawmakers would be wise to follow suit.
Using the 2015 session to enact these reforms is certainly important for Texas itself, but it’s also important for the nation. As Vance Ginn, Economist at Texas Public Policy Foundation’s (TPPF) Center for Fiscal Policy has noted, “excluding the 1.1 million jobs added in Texas since the last recession started in December 2007 to the beginning of 2014, the rest of the U.S. employs about 350,000 fewer people than its pre-recession level.” President Obama should’ve said a big thank you to Texas during this year’s State of the Union Address.
These reforms, in addition to the implementation of a true spending cap, such as the one proposed by TPPF, would ensure that Texas spending grows at a sustainable pace, taxpayers are protected, and that the Lone Star State remains the economic envy of much of the nation.
Patrick Gleason is Director of State Affairs at Americans for Tax Reform and a Senior Fellow at the Beacon Center of Tennessee. Follow Patrick on Twitter @PatrickMGleason.
