| TO: | Honorable Kent Grusendorf, Chair, House Committee on Public School Finance, Select |
| FROM: | John Keel, Director, Legislative Budget Board |
| IN RE: | HB1 by Grusendorf (Relating to public education and public school finance, including state and local taxation.), As Introduced |
House Bill 1, As Introduced: Summary of Elements
Tax Changes
· Expand sales tax to include certain software, effective January 1, 2005.
· Increase cigarette tax rate to $1.41 per pack, effective January 1, 2005.
· Authorize video gaming, effective January 1, 2005.
· Reduce annual appraisal limitation on residential property to three percent, effective January1, 2005.
· Eliminate corporate franchise tax, effective January 1, 2005.
Revenue Changes
· $739.7 million reduction in fiscal year 2006
· $693.3 million reduction in fiscal year 2007
Initial Impact
· Business receives over 100 percent of the revenue reduction in both fiscal 2006 and 2007.
Major Industry Initial Impact
· Largest dollar decrease: $438.1 m in fiscal 2006 to the manufacturing industry.
· Largest percentage decrease in overall tax liability: 11.0 percent in fiscal 2006 to the wholesales trade industry.
Final Tax Incidence
· Lowest income level ($0 to mid $10,000s income range):
$25.4 million decrease, or 1.14 percent, in fiscal year 2006.
$25.7 million decrease, or 1.14 percent, in fiscal year 2007.
· Middle income level (mid $50,000s to low $70,000s income range):
$2.6 million decrease, or 0.07 percent, in fiscal year 2006.
$2.9 million increase, or 0.07 percent, in fiscal year 2007.
· Highest income level (low $180,000s and above):
$89.2 million decrease, or 0.85 percent, in fiscal year 2006.
$86.3 million decrease, or 0.78 percent, in fiscal year 2007.
Initial Tax Impact by Industry:
House Bill 1, As Introduced, 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 Impact under
Current Law vs. House Bill 1, As Introduced
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 Impact under
Current Law vs. House Bill 1, As Introduced
Fiscal Year 2007
|
Share of Texas Gross State Product |
Current Law (millions) |
Share of Total |
HB 1 Liability (millions) |
Share of Total |
Dollar Change (millions) |
Percent Change from Current Law | ||
|
Agriculture |
1.12% |
540.8 |
1.6% |
$ 527.6 |
1.6% |
0.72% |
(2.44)% | |
|
Mining |
5.07% |
3,804.1 |
11.2% |
3,686.4 |
11.5% |
( 117.7) |
6.39% |
(3.09)% |
|
Construction |
5.13% |
1,268.9 |
3.7% |
1,218.3 |
3.8% |
( 50.6) |
2.75% |
(3.99)% |
|
Manufacturing |
10.95% |
7,429.4 |
21.8% |
6,972.5 |
21.7% |
( 456.9) |
24.80% |
(6.15)% |
|
Transportation/Utilities |
11.35% |
6,187.1 |
18.2% |
5,918.6 |
18.4% |
( 268.5) |
14.57% |
(4.34)% |
|
Wholesale Trade |
7.23% |
1,497.5 |
4.4% |
1,323.4 |
4.1% |
( 174.1) |
9.45% |
(11.63)% |
|
Retail Trade |
9.72% |
1,951.3 |
5.7% |
1,869.3 |
5.8% |
( 82.0) |
4.45% |
(4.20)% |
|
Fin., Ins., Real Estate |
14.99% |
6,609.4 |
19.4% |
6,432.4 |
20.0% |
( 177.0) |
9.61% |
(2.68)% |
|
Residential Rental* |
na |
1,639.9 |
4.8% |
1,639.5 |
5.1% |
( 0.4) |
0.02% |
(0.02)% |
|
Services |
22.39% |
2,784.1 |
8.2% |
2,575.8 |
8.0% |
( 208.3) |
11.31% |
(7.48)% |
|
Not Classified |
na |
293.7 |
0.9% |
0.2 |
0.0% |
( 293.5) |
15.93% |
(99.93)% |
|
Government |
12.05% |
na |
na |
na |
na |
na |
na |
na |
|
Subtotal Industry |
100.00% |
$34,006.2 |
99.9% |
$32,164.0 |
100.0% |
($1,842.2) |
100.0% |
(5.42)% |
|
|
|
|
|
|
|
|
| |
|
Individuals/Consumers |
|
|
|
|
|
|
|
|
|
Residential, Owner Occupied |
|
$15,327.8 |
|
$15,165.5 |
|
( 162.3) |
|
(1.06)% |
|
Sales & Excise Taxes |
|
$14,297.1 |
|
$15,608.3 |
|
1,311.2 |
|
9.17% |
|
Other Taxes on Individuals |
|
$ 447.8 |
|
$ 447.8 |
|
0.0 |
|
0.00% |
|
Total Taxes on Individuals |
|
$30,072.7 |
|
$31,221.6 |
|
1,148.9 |
|
3.82% |
|
|
|
|
|
|
|
|
|
|
|
Total – All Taxes |
|
$64,078.9 |
|
$63,385.6 |
|
|
(1.08)% |
* 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 Incidence by Income Group
Economists commonly distinguish between the initial “impact” of a tax 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 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 Incidence by Income Decile
Current Law vs. House Bill 1, As Introduced
Fiscal Year 2006
Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business
|
Expanded Family Range (Dollars) |
Current Law Tax (millions) |
HB 1 Tax (millions) |
Change in Tax (Millions) |
Percent Change in Tax | |||
|
1 |
$ 0 |
to |
$15,398 |
$2,234.5 |
$2,209.1 |
($ 25.4) |
(1.14)% |
|
2 |
$15,398 |
to |
$28,652 |
2,560.9 |
2,550.3 |
( 10.6) |
(0.41)% |
|
3 |
$28,652 |
to |
$42,154 |
2,886.9 |
2,875.3 |
( 11.6) |
(0.40)% |
|
4 |
$42,154 |
to |
$56,464 |
3,577.7 |
3,575.9 |
( 1.8) |
(0.05)% |
|
5 |
$56,464 |
to |
$71,066 |
3,927.2 |
3,924.6 |
( 2.6) |
(0.07)% |
|
6 |
$71,066 |
to |
$87,605 |
4,462.2 |
4,463.1 |
0.9 |
0.02% |
|
7 |
$87,605 |
to |
$107,794 |
5,185.2 |
5,177.6 |
( 7.6) |
(0.15)% |
|
8 |
$107,794 |
to |
$135,001 |
5,950.6 |
5,927.6 |
( 23.0) |
(0.39)% |
|
9 |
$135,001 |
to |
$181,711 |
7,783.1 |
7,756.5 |
( 26.6) |
(0.34)% |
|
10 |
Over |
|
$181,711 |
10,532.4 |
10,443.2 |
( 89.2) |
(0.85)% |
|
|
Total |
|
|
$49,100.7 |
$48,903.2 |
(0.40)% | |
Table 3b
Tax Incidence by Income Decile
Current Law vs. House Bill 1, As Introduced
Fiscal Year 2007
Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business
|
Expanded Family Range (Dollars) |
Current Law Tax (millions) |
HB 1 Tax (millions) |
Change in Tax (Millions) |
Percent Change in Tax | |||
|
1 |
$ 0 |
to |
$15,917 |
$2,264.2 |
$2,238.5 |
($ 25.7) |
(1.14)% |
|
2 |
$15,917 |
to |
$29,617 |
2,595.8 |
2,587.5 |
( 8.3) |
(0.32)% |
|
3 |
$29,617 |
to |
$43,573 |
2,938.1 |
2,929.0 |
( 9.1) |
(0.31)% |
|
4 |
$43,573 |
to |
$58,366 |
3,646.7 |
3,649.8 |
3.1 |
0.09% |
|
5 |
$58,366 |
to |
$73,460 |
4,015.2 |
4,018.1 |
2.9 |
0.07% |
|
6 |
$73,460 |
to |
$90,555 |
4,579.0 |
4,587.4 |
8.4 |
0.18% |
|
7 |
$90,555 |
to |
$111,425 |
5,345.7 |
5,346.5 |
0.8 |
0.01% |
|
8 |
$111,425 |
to |
$139,548 |
6,160.6 |
6,145.4 |
( 15.2) |
(0.25)% |
|
9 |
$139,548 |
to |
$187,831 |
8,115.9 |
8,102.6 |
( 13.3) |
(0.16)% |
|
10 |
Over |
|
$187,831 |
11,066.0 |
10,979.7 |
( 86.3) |
(0.78)% |
|
|
Total |
|
|
$50,727.2 |
$50,584.5 |
(0.28)% | |
House Bill 1, As Introduced would decrease the taxes of all households by $197.5 million in fiscal year 2006 and decrease taxes of all households by $142.7 million in 2007. The difference fiscal year 2006 between the initial reduction in revenue of $739.7 million and reduction of $197.5 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 Rate by Income Decile
Current Law vs. House Bill 1, As Introduced
Fiscal Year 2006
Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business
|
Expanded Family Range (Dollars) |
Current Law Effective Rate |
HB1 Effective Rate |
Current Law Effective Rate Less HB1 Effective Rate |
Percent Change in Effective Rate | |||
|
1 |
$ 0 |
to |
$15,398 |
42.28% |
41.80% |
( 0.48)% |
(1.14)% |
|
2 |
$15,398 |
to |
$28,652 |
16.64% |
16.57% |
( 0.07)% |
(0.42)% |
|
3 |
$28,652 |
to |
$42,154 |
11.57% |
11.53% |
( 0.04)% |
(0.35)% |
|
4 |
$42,154 |
to |
$56,464 |
10.03% |
10.02% |
( 0.01)% |
(0.10)% |
|
5 |
$56,464 |
to |
$71,066 |
9.02% |
9.02% |
0.00% |
0.00% |
|
6 |
$71,066 |
to |
$87,605 |
8.06% |
8.06% |
0.00% |
0.00% |
|
7 |
$87,605 |
to |
$107,794 |
7.10% |
7.09% |
( 0.01)% |
(0.14)% |
|
8 |
$107,794 |
to |
$135,001 |
6.45% |
6.42% |
( 0.03)% |
(0.47)% |
|
9 |
$135,001 |
to |
$181,711 |
6.09% |
6.07% |
( 0.02)% |
(0.33)% |
|
10 |
Over |
|
$181,711 |
4.14% |
4.11% |
( 0.03)% |
(0.72)% |
|
|
Total |
|
|
6.75% |
6.72% |
( 0.03)% |
|
Table 4b
Effective Tax Rate by Income Decile
Current Law vs. House Bill 1, As Introduced
Fiscal Year 2007
Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business
|
Expanded Family Range (Dollars) |
Current Law Effective Rate |
HB1 Effective Rate |
Current Law Effective Rate Less HB1 Effective Rate |
Percent Change in Effective Rate | |||
|
1 |
$ 0 |
to |
$15,917 |
40.60% |
40.14% |
( 0.46)% |
(1.13)% |
|
2 |
$15,917 |
to |
$29,617 |
15.98% |
15.93% |
( 0.05)% |
(0.31)% |
|
3 |
$29,617 |
to |
$43,573 |
11.16% |
11.13% |
( 0.03)% |
(0.27)% |
|
4 |
$43,573 |
to |
$58,366 |
9.69% |
9.69% |
0.00% |
0.00% |
|
5 |
$58,366 |
to |
$73,460 |
8.74% |
8.75% |
0.01% |
0.11% |
|
6 |
$73,460 |
to |
$90,555 |
7.83% |
7.85% |
0.02% |
0.26% |
|
7 |
$90,555 |
to |
$111,425 |
6.94% |
6.94% |
0.00% |
0.00% |
|
8 |
$111,425 |
to |
$139,548 |
6.32% |
6.31% |
( 0.01)% |
(0.16)% |
|
9 |
$139,548 |
to |
$187,831 |
6.02% |
6.01% |
( 0.01)% |
(0.17)% |
|
10 |
Over |
|
$187,831 |
4.12% |
4.09% |
( 0.03)% |
(0.73)% |
|
|
Total |
|
|
6.61% |
6.59% |
( 0.02)% |
|
| Source Agencies: |
| LBB Staff: | JK, WP
|