| TO: | Honorable Tom Craddick, Speaker of the House, House of Representatives |
| FROM: | John Keel, Director, Legislative Budget Board |
| IN RE: | HB1 by Grusendorf (Relating to public education, public school finance, and related matters, including certain new or modified taxes and fees, the authorization of a state video lottery system, and other state and local tax and revenue measures to provide sufficient funding for public education and to provide tax relief and protection for taxpayers; providing penalties.), Committee Report 1st House, Substituted |
House Bill 1, As Substituted: Summary of Elements
Tax/Fee Changes
· Increase state sales tax rate to 6.75 percent, effective January 1, 2005;
· Expand sales tax base to certain items and services, effective January 1, 2005.
· Increase motor vehicle and boat sales taxes to 7.75 percent, eff. January 1, 2005;
· Increase cigarette tax rate to $1.41 per pack, effective January 1, 2005.
· Increase tax rates on other tobacco products, effective January 1, 2005;
· Impose amusement ticket surcharge, effective January 1, 2005;
· Extend telecommunications infrastructure fee, effective January 1, 2005;
· Authorize video gaming, effective January 1, 2005.
· Reduce school district property taxes to uniform $1.05, eff. January 1, 2005.
· Authorize school district enrichment tax of up to $0.10, eff. January 1, 2006.
· Reduce annual appraisal limitation on residential property to five percent, effective January1, 2005.
· Require price disclosure on sales of certain real property, eff. January 1, 2005.
· Impose payroll tax, effective January 1, 2005;
· Eliminate corporate franchise tax, effective January 1, 2005.
NOTE: This analysis does not include the revenue impact from the dynamic economic impacts associated with the bill.
Revenue Changes
· $813.0 million increase in fiscal year 2006
· $687.0 million increase in fiscal year 2007
Initial Impact
· 100.0 percent to individuals in fiscal year 2006
· 26.2 percent to business, 73.8 percent to individuals in fiscal year 2007
Major Industry Initial Impact
· Largest dollar decrease: $345.5 m in fiscal 2006 to the utilities industry.
· Largest percentage decrease in overall tax liability: 16.93 percent in fiscal 2006 to the residential rental industry.
Final Tax/Fee Incidence
· Lowest income level ($0 to mid $10,000s income range):
$106.2 million increase, or 4.74 percent, in fiscal year 2006.
$115.4 million increase, or 5.10 percent, in fiscal year 2007.
· Middle income level (mid $50,000s to low $70,000s income range):
$199.2 million increase, or 5.06 percent, in fiscal year 2006.
$202.0 million increase, or 5.03 percent, in fiscal year 2007.
· Highest income level (low $180,000s and above):
$322.9 million decrease, or 3.06 percent, in fiscal year 2006.
$449.0 million decrease, or 4.06 percent, in fiscal year 2007.
Initial Tax/Fee Impact by Industry:
House Bill 1, As Substituted, was analyzed using the LBB’s multi-tax model to determine the initial impact of the proposed changes relative to current law. The results of the analysis are shown in Table 2a and Table 2b, below.
Table 2a
Comparison of Initial Tax/Fee Impact under
Current Law vs. House Bill 1, As Substituted
Fiscal Year 2006
Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business
* The Residential Rental category above reflects property taxes on residential property only. Note: Property taxes include city, county, special district and school district taxes; other taxes on individuals include the mixed beverage tax and the inheritance tax.
Table 2b
Comparison of Initial Tax/Fee Impact under
Current Law vs. House Bill 1, As Substituted
Fiscal Year 2007
|
Share of Texas Gross State Product |
Current Law (millions) |
Share of Total |
CSHB 1 Liability (millions) |
Share of Total |
Dollar Change (millions) |
Percent Change from Current Law | ||
|
Agriculture |
1.12% |
540.7 |
1.6% |
$ 465.4 |
1.4% |
(41.83)% |
(13.93)% | |
|
Mining |
5.07% |
3,803.2 |
11.2% |
3,623.8 |
10.6% |
( 179.4) |
(99.67)% |
(4.72)% |
|
Construction |
5.13% |
1,268.1 |
3.7% |
1,509.8 |
4.4% |
241.7 |
134.28% |
19.06% |
|
Manufacturing |
10.95% |
7,415.3 |
21.8% |
7,164.7 |
21.0% |
( 250.6) |
(139.22)% |
(3.38)% |
|
Transportation/Utilities |
11.35% |
6,178.9 |
18.2% |
5,854.9 |
17.1% |
( 324.0) |
(180.00)% |
(5.24)% |
|
Wholesale Trade |
7.23% |
1,495.2 |
4.4% |
1,543.4 |
4.5% |
48.2 |
26.78% |
3.22% |
|
Retail Trade |
9.72% |
1,948.5 |
5.7% |
2,150.9 |
6.3% |
202.4 |
112.44% |
10.39% |
|
Fin., Ins., Real Estate |
14.99% |
6,607.9 |
19.4% |
6,291.5 |
18.4% |
( 316.4) |
(175.78)% |
(4.79)% |
|
Residential Rental* |
na |
1,639.9 |
4.8% |
1,352.2 |
4.0% |
( 287.7) |
(159.83)% |
(17.54)% |
|
Services |
22.39% |
2,783.5 |
8.2% |
3,904.6 |
11.4% |
1,121.1 |
622.83% |
40.28% |
|
Not Classified |
na |
293.7 |
0.9% |
293.7 |
0.9% |
0.0 |
0.00% |
0.00% |
|
Government |
12.05% |
na |
na |
na |
na |
na |
na |
na |
|
Subtotal Industry |
100.00% |
$33,974.9 |
99.9% |
$34,154.9 |
100.0% |
$ 180.0 |
463.0% |
0.53% |
|
|
|
|
|
|
|
|
| |
|
Individuals/Consumers |
|
|
|
|
|
|
|
|
|
Residential, Owner Occupied |
|
$15,327.8 |
|
$12,816.8 |
|
(2,511.0) |
|
(16.38)% |
|
Sales & Excise Taxes |
|
$14,199.2 |
|
$17,005.2 |
|
2,806.0 |
|
19.76% |
|
Other Taxes on Individuals |
|
$ 447.8 |
|
$ 659.8 |
|
212.0 |
|
47.34% |
|
Total Taxes on Individuals |
|
$29,974.8 |
|
$30,481.8 |
|
507.0 |
|
1.69% |
|
|
|
|
|
|
|
|
|
|
|
Total – All Taxes |
|
$63,949.7 |
|
$64,636.7 |
|
|
1.07% |
* The Residential Rental category above reflects property taxes on residential property only. Note: Property taxes include city, county, special district and school district taxes; other taxes on individuals include the mixed beverage tax and the inheritance tax.
Tax/Fee Incidence by Income Group
Economists commonly distinguish between the initial “impact” of a tax or fee and its “incidence.” The initial impact of a tax falls on taxpayers legally liable to pay the tax, while the incidence refers to the ultimate payer of the tax. For example, the initial impact of a business tax falls on the firm incurring the tax liability. However, to varying degrees, the tax cost is “shifted” so that the ultimate burden of the tax falls either to consumers and businesses in different retail prices, to employees in changed wages, to owners of land and capital in different investment returns, or most likely, to some combination of all three. The degree to which a tax can be shifted depends on the type of tax and the competitiveness of capital, labor, and product markets.
The results of this analysis are shown in Table 3a and Table 3b and Table 4a and Table 4b.
Table 3a
Tax/Fee Incidence by Income Decile
Current Law vs. House Bill 1, As Substituted
Fiscal Year 2006
Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business
|
Expanded Family Range (Dollars) |
Current Law Tax (millions) |
CSHB 1 Tax (millions) |
Change in Tax/Fee (Millions) |
Percent Change in Tax | |||
|
1 |
$ 0 |
to |
$15,398 |
$2,241.9 |
$2,348.1 |
$ 106.2 |
4.74% |
|
2 |
$15,398 |
to |
$28,652 |
2,569.0 |
2,709.7 |
140.7 |
5.48% |
|
3 |
$28,652 |
to |
$42,154 |
2,895.1 |
3,031.9 |
136.8 |
4.73% |
|
4 |
$42,154 |
to |
$56,464 |
3,587.2 |
3,781.0 |
193.8 |
5.40% |
|
5 |
$56,464 |
to |
$71,066 |
3,936.9 |
4,136.1 |
199.2 |
5.06% |
|
6 |
$71,066 |
to |
$87,605 |
4,472.4 |
4,670.4 |
198.0 |
4.43% |
|
7 |
$87,605 |
to |
$107,794 |
5,196.2 |
5,371.6 |
175.4 |
3.38% |
|
8 |
$107,794 |
to |
$135,001 |
5,962.7 |
6,088.4 |
125.7 |
2.11% |
|
9 |
$135,001 |
to |
$181,711 |
7,796.5 |
7,878.9 |
82.4 |
1.06% |
|
10 |
Over |
|
$181,711 |
10,549.7 |
10,226.8 |
( 322.9) |
(3.06)% |
|
|
Total |
|
|
$49,207.6 |
$50,242.9 |
2.10% | |
Table 3b
Tax/Fee Incidence by Income Decile
Current Law vs. House Bill 1, As Substituted
Fiscal Year 2007
Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business
|
Expanded Family Range (Dollars) |
Current Law Tax (millions) |
CSHB 1 Tax (millions) |
Change in Tax/Fee (Millions) |
Percent Change in Tax | |||
|
1 |
$ 0 |
to |
$15,917 |
$2,264.2 |
$2,379.6 |
$ 115.4 |
5.10% |
|
2 |
$15,917 |
to |
$29,617 |
2,594.7 |
2,745.9 |
151.2 |
5.83% |
|
3 |
$29,617 |
to |
$43,573 |
2,936.8 |
3,079.8 |
143.0 |
4.87% |
|
4 |
$43,573 |
to |
$58,366 |
3,644.3 |
3,844.9 |
200.6 |
5.50% |
|
5 |
$58,366 |
to |
$73,460 |
4,012.7 |
4,214.7 |
202.0 |
5.03% |
|
6 |
$73,460 |
to |
$90,555 |
4,576.1 |
4,770.5 |
194.4 |
4.25% |
|
7 |
$90,555 |
to |
$111,425 |
5,342.9 |
5,505.8 |
162.9 |
3.05% |
|
8 |
$111,425 |
to |
$139,548 |
6,158.5 |
6,259.1 |
100.6 |
1.63% |
|
9 |
$139,548 |
to |
$187,831 |
8,114.9 |
8,142.6 |
27.7 |
0.34% |
|
10 |
Over |
|
$187,831 |
11,067.8 |
10,618.8 |
( 449.0) |
(4.06)% |
|
|
Total |
|
|
$50,712.9 |
$51,561.7 |
1.67% | |
House Bill 1, As Substituted would increase the taxes and fees of all households by $1,035.3 million in fiscal year 2006 and increase taxes and fees of all households by $848.8 million in 2007. The difference fiscal year 2006 between the initial increase in revenue of $813 million and increase of $1,035.3 million in tax incidence is primarily due to the exporting of some of the tax changes to non-Texas consumers and businesses, changes in federal tax liability, and the absorption of some of the tax changes by business profits, some of which are received by non-Texas shareholders and business owners. Similar factors account for the difference in fiscal year 2007.
Table 4a
Effective Tax/Fee Rate by Income Decile
Current Law vs. House Bill 1, As Substituted
Fiscal Year 2006
Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business
|
Expanded Family Range (Dollars) |
Current Law Effective Rate |
CSHB1 Effective Rate |
Current Law Effective Rate Less CSHB1 Effective Rate |
Percent Change in Effective Rate | |||
|
1 |
$ 0 |
to |
$15,398 |
42.43% |
44.43% |
2.00% |
4.71% |
|
2 |
$15,398 |
to |
$28,652 |
16.69% |
17.60% |
0.91% |
5.45% |
|
3 |
$28,652 |
to |
$42,154 |
11.61% |
12.16% |
0.55% |
4.74% |
|
4 |
$42,154 |
to |
$56,464 |
10.05% |
10.60% |
0.55% |
5.47% |
|
5 |
$56,464 |
to |
$71,066 |
9.05% |
9.50% |
0.45% |
4.97% |
|
6 |
$71,066 |
to |
$87,605 |
8.08% |
8.43% |
0.35% |
4.33% |
|
7 |
$87,605 |
to |
$107,794 |
7.12% |
7.36% |
0.24% |
3.37% |
|
8 |
$107,794 |
to |
$135,001 |
6.46% |
6.60% |
0.14% |
2.17% |
|
9 |
$135,001 |
to |
$181,711 |
6.11% |
6.17% |
0.06% |
0.98% |
|
10 |
Over |
|
$181,711 |
4.15% |
4.02% |
( 0.13)% |
(3.13)% |
|
|
Total |
|
|
6.76% |
6.91% |
0.15% |
|
Table 4b
Effective Tax/Fee Rate by Income Decile
Current Law vs. House Bill 1, As Substituted
Fiscal Year 2007
Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business
|
Expanded Family Range (Dollars) |
Current Law Effective Rate |
CSHB1 Effective Rate |
Current Law Effective Rate Less CSHB1 Effective Rate |
Percent Change in Effective Rate | |||
|
1 |
$ 0 |
to |
$15,917 |
40.60% |
42.67% |
2.07% |
5.10% |
|
2 |
$15,917 |
to |
$29,617 |
15.97% |
16.90% |
0.93% |
5.82% |
|
3 |
$29,617 |
to |
$43,573 |
11.16% |
11.70% |
0.54% |
4.84% |
|
4 |
$43,573 |
to |
$58,366 |
9.68% |
10.21% |
0.53% |
5.48% |
|
5 |
$58,366 |
to |
$73,460 |
8.74% |
9.18% |
0.44% |
5.03% |
|
6 |
$73,460 |
to |
$90,555 |
7.83% |
8.16% |
0.33% |
4.21% |
|
7 |
$90,555 |
to |
$111,425 |
6.94% |
7.15% |
0.21% |
3.03% |
|
8 |
$111,425 |
to |
$139,548 |
6.32% |
6.43% |
0.11% |
1.74% |
|
9 |
$139,548 |
to |
$187,831 |
6.02% |
6.04% |
0.02% |
0.33% |
|
10 |
Over |
|
$187,831 |
4.12% |
3.96% |
( 0.16)% |
(3.88)% |
|
|
Total |
|
|
6.60% |
6.72% |
0.12% |
|
House Bill 1, As Substituted would increase the effective tax rate for all households by 2.22% in fiscal year 2006 and increase the effective rate for all households by 1.82% in 2007. The effective tax rate is the aggregate amount of tax in a given income class divided by the aggregate amount of personal income in that class.
| Source Agencies: |
| LBB Staff: | JK, SD, WP
|