While Lt. Gov. Dan Patrick prepares to have the Texas Senate vote this week on more than $4.5 billion in cuts to property and business taxes, the measures are drawing a sharp debate on whether the plan is cutting the right taxes.
Several business groups have suggested that this session’s tax cut package should be shaped differently to have a more powerful impact on businesses. The position puts groups like the Texas Association of Business and the Texas Oil and Gas Association at odds with real estate agents, some small businesses and the state’s most prominent conservative activists.
Patrick has touted three bills – Senate Bills 1, 7 and 8 — as the core of his tax cut package. SB 1, the largest measure, would spend about $2.4 billion to increase homestead exemptions from school property taxes. SB 7 would cut the rate of the margins tax, also known as the business franchise tax, by 15 percent, which would translate into a loss of $1.4 billion in state revenue over the next two years, according to state estimates. SB 8 would cut state revenue by $760 million over the next two years by allowing businesses with $4 million or less in revenue to avoid paying the tax entirely. Currently, that exemption only applies to businesses with revenue of $1 million or less.
On Friday, leaders of some major business groups including the Texas Association of Business, the Texas Oil and Gas Association, the Texas Association of Retailers, and the Texas Association of Manufacturers sent a letter to Patrick and the members of the Senate criticizing the tax cut plan as “a type of class warfare that will threaten Texas’ pro-business reputation.”
The business groups argued that the proposed property tax cut, which would only apply to homeowners, would create a “split tax roll” that would eventually lead to businesses carrying more of the load for future property tax increases. They also criticized the margins tax cut as shifting the business tax burden from small businesses on to bigger ones.
“One taxpayer would have to carry the load for 19 non-taxpaying businesses,” the letter reads. “If tax cuts are a part of that mix, they should be fair to all taxpayers and not create new inequities likely to worsen an already high tax barrier to business investment in the state.”
Patrick has also drawn a diverse coalition in support of his tax cut plan. Along with conservative groups like Empower Texans, business groups including the Texas Association of Realtors and the National Federation of Independent Business (NFIB)/Texas have backed the package.
NFIB/Texas Executive Director Will Newton pointed to SB 8 in particular as being valuable to small businesses, some of which pay to hire extra accountants to help determine their liability under the margins tax.
“It does a great thing in essentially eliminating not just the tax liability, but the compliance cost associated with this horrible onerous tax,” Newton said of the legislation. “It’s the most cumbersome system of taxation ever advised.”
On Monday, Newton joined a dozen conservative activists, including Empower Texans President Michael Quinn Sullivan and Talmadge Heflin of the Texas Public Policy Foundation, in signing a letter to the Texas Senate urging them to maintain their focus on reducing the margins tax.
“There is abundant research showing that the business margin tax costs Texans the most in terms of lower incomes and fewer jobs,” the letter reads. “For the sake of Texans’ opportunity to prosper today and in the future, particularly the working poor, this is the moment in the state’s history to put the margin tax on a path to elimination.”
Sullivan was more pointed in his take on the issue during a telephone town hall to supporters on Sunday.
“While these are the most significant tax relief measures that have been brought forward in several decades in Texas, what we are finding is that big business is opposing this legislative package,” Sullivan said. “Big business is lobbying hard to kill the property tax relief. They’re lobbying hard to stop the business tax relief for small businesses.”
In the House, where tax cut proposals are moving more slowly, Patrick’s insistence on cutting the property tax has drawn a muted response. Several House leaders have questioned whether Texans will even notice a property tax cut that is expected to average just over $200 in its first year for homeowners.
Ways and Means Chairman Dennis Bonnen, R-Angleton, has proposed leaving the property tax alone and instead cutting the rates of the margins tax and the sales tax. While Bonnen has previously suggested that his proposal would have a bigger impact on homeowners and businesses than the Senate proposal, he sounded a more agnostic tone on Monday.
“I think cutting any tax is a good plan, and I think it is really healthy that the Senate has their ideas and the House has their ideas,” Bonnen said. “I’ll wait for the Senate to send it over and we’ll see what happens — I think what’s healthy is we’re talking about cutting taxes.”