TO: | Honorable Dennis Bonnen, Chair, House Committee on Environmental Regulation |
FROM: | John Keel, Director, Legislative Budget Board |
IN RE: | HB1365 by Bonnen (Relating to the Texas emissions reduction plan. ), Committee Report 1st House, Substituted |
House Bill 1365, As Substituted: Summary of Elements
Tax Changes
· Increase surcharge on certain diesel equipment from one to two percent, and expand definition of equipment subject to surcharge to include mining and certain drilling equipment, effective September 1, 2003.
· Impose temporary fee, at various rates, on delivery of diesel fuel, effective September 1, 2003.
Revenue Increases
· $111.2 million in fiscal year 2004
· $136.9 million in fiscal year 2005
Initial Impact
· 99.2 percent to business, 0.8 percent to individuals in fiscal year 2004
· 99.3 percent to business, 0.7 percent to individuals in fiscal year 2005
Major Industry Initial Impact
· Largest dollar increase: $72.8 million in fiscal year 2004 and $80.9 million in fiscal year 2005, to the transportation, communication and utility industry.
· Largest percentage increase in overall tax liability: 1.3 percent in fiscal year 2004 and 1.3 percent in fiscal year 2005, to the transportation, communication and utility industry.
Net Revenue Impact After Dynamic Analysis
· $111.2 million increase in fiscal year 2004
· $135.4 million increase in fiscal year 2005
Final Tax Incidence
· Fiscal 2004 impact to the middle income level (low $50,000s to mid $60,000s): $8.1 million increase, or 0.23 percent.
· Fiscal 2005 impact to the middle income level (mid $50,000s to high $60,000s): $9.5 million decrease, or 0.24 percent.
Initial Tax Impact by Industry:
House Bill 1365, 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 Impact under
Current Law vs. House Bill 1365, As Substituted
Fiscal Year 2004
Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business
Current Law (millions) |
Share of Total |
CSHB 1365 Liability (millions) |
Share of Total |
Dollar Change (millions) |
Percent Change from Current Law | ||
Agriculture |
495.3 |
1.7% |
$ 495.6 |
1.7% |
$ 0.3 |
0.06% | |
Mining |
3,017.6 |
10.2% |
3,028.1 |
10.2% |
10.5 |
9.5% |
0.35% |
Construction |
943.5 |
3.2% |
954.4 |
3.2% |
10.9 |
9.9% |
1.16% |
Manufacturing |
6,558.5 |
22.2% |
6,571.3 |
22.1% |
12.8 |
11.6% |
0.20% |
Transportation/Utilities |
5,745.9 |
19.4% |
5,818.7 |
19.6% |
72.8 |
66.0% |
1.27% |
Wholesale Trade |
1,295.1 |
4.4% |
1,295.2 |
4.4% |
0.1 |
0.1% |
0.01% |
Retail Trade |
1,694.0 |
5.7% |
1,694.0 |
5.7% |
0.0 |
0.0% |
0.00% |
Fin., Ins., Real Estate |
5,622.8 |
19.0% |
5,622.8 |
18.9% |
0.0 |
0.0% |
0.00% |
Residential Rental* |
1,588.4 |
5.4% |
1,588.4 |
5.4% |
0.0 |
0.0% |
0.00% |
Services |
2,302.6 |
7.8% |
2,305.5 |
7.8% |
2.9 |
2.6% |
0.13% |
Not Classified |
299.9 |
1.0% |
299.9 |
1.0% |
0.0 |
0.0% |
0.00% |
Subtotal Industry |
$29,563.6 |
100.0% |
$29,673.9 |
100.0% |
100.0% |
0.37% | |
|
|
|
|
|
|
| |
Individuals/Consumers |
|
|
|
|
|
|
|
Residential, Owner Occupied |
$13,296.2 |
|
$13,296.2 |
|
0.0 |
|
0.00% |
Sales & Excise Taxes |
$10,618.8 |
|
$10,619.7 |
|
0.9 |
|
0.01% |
Other Taxes on Individuals |
$ 519.2 |
|
$ 519.2 |
|
0.0 |
|
0.00% |
Total Taxes on Individuals |
$24,434.2 |
|
$24,435.1 |
|
0.9 |
|
0.00% |
|
|
|
|
|
|
|
|
Total – All Taxes |
$53,997.8 |
|
$54,109.0 |
|
|
0.2% |
* 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 1365, As Substituted
Fiscal Year 2005
Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business
Current Law (millions) |
Share of Total |
CSHB 1365 Liability (millions) |
Share of Total |
Dollar Change (millions) |
Percent Change from Current Law | ||
Agriculture |
512.9 |
1.7% |
$ 512.9 |
1.6% |
$ 0.0 |
0.0% | |
Mining |
3,038.5 |
9.8% |
3,055.5 |
9.8% |
17.0 |
13.0% |
0.6% |
Construction |
983.8 |
3.2% |
1,001.5 |
3.2% |
17.7 |
13.0% |
1.8% |
Manufacturing |
6,884.1 |
22.2% |
6,898.7 |
22.2% |
14.6 |
10.7% |
0.2% |
Transportation/Utilities |
6,053.8 |
19.6% |
6,134.7 |
19.7% |
80.9 |
59.5% |
1.3% |
Wholesale Trade |
1,361.3 |
4.4% |
1,361.4 |
4.4% |
0.1 |
0.1% |
0.0% |
Retail Trade |
1,781.3 |
5.8% |
1,781.3 |
5.7% |
0.0 |
0.0% |
0.0% |
Fin., Ins., Real Estate |
5,873.6 |
19.0% |
5,873.6 |
18.9% |
0.0 |
0.0% |
0.0% |
Residential Rental* |
1,706.8 |
5.5% |
1,706.8 |
5.5% |
0.0 |
0.0% |
0.0% |
Services |
2,436.4 |
7.9% |
2,442.0 |
7.9% |
5.6 |
4.1% |
0.2% |
Not Classified |
324.6 |
1.0% |
324.6 |
1.0% |
0.0 |
0.0% |
0.0% |
Subtotal Industry |
$30,957.1 |
100.1% |
$31,093.0 |
1.0% |
$ 135.9 |
100.0% |
0.4% |
|
|
|
|
|
|
| |
Individuals/Consumers |
|
|
|
|
|
|
|
Residential, Owner Occupied |
$14,213.0 |
|
$14,213.0 |
|
0.0 |
|
0.0% |
Sales & Excise Taxes |
$11,056.1 |
|
$11,057.0 |
|
0.9 |
|
0.0% |
Other Taxes on Individuals |
$ 463.0 |
|
$ 463.0 |
|
0.0 |
|
0.0% |
Total Taxes on Individuals |
$25,732.1 |
|
$25,733.0 |
|
0.9 |
|
0.0% |
|
|
|
|
|
|
|
|
Total – All Taxes |
$56,689.2 |
|
$56,826.0 |
|
|
0.2% |
* 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 1365, As Substituted
Fiscal Year 2004
Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business
Expanded Family Range (Dollars) |
Current Law Tax (millions) |
CSHB 1365 Tax (millions) |
Change in Tax (Millions) |
Percent Change in Tax | |||
1 |
$ 0 |
to |
$14,412 |
$2,037.7 |
$2,044.7 |
$ 7.0 |
0.34% |
2 |
$14,412 |
to |
$26,816 |
2,291.2 |
2,296.5 |
5.3 |
0.23% |
3 |
$26,816 |
to |
$39,453 |
2,575.6 |
2,582.7 |
7.1 |
0.28% |
4 |
$39,453 |
to |
$52,844 |
3,145.2 |
3,153.4 |
8.2 |
0.26% |
5 |
$52,844 |
to |
$66,511 |
3,512.3 |
3,520.4 |
8.1 |
0.23% |
6 |
$66,511 |
to |
$81,990 |
3,971.0 |
3,980.7 |
9.7 |
0.24% |
7 |
$81,990 |
to |
$100,884 |
4,501.3 |
4,512.2 |
10.9 |
0.24% |
8 |
$100,884 |
to |
$126,345 |
5,271.2 |
5,281.0 |
9.8 |
0.19% |
9 |
$126,345 |
to |
$170,062 |
6,599.6 |
6,616.7 |
17.1 |
0.26% |
10 |
Over |
|
$170,062 |
8,969.1 |
8,988.9 |
19.8 |
0.22% |
|
Total |
|
|
$42,874.2 |
$42,977.2 |
0.24% |
Table 3b
Tax Incidence by Income Decile
Current Law vs. House Bill 1365, As Substituted
Fiscal Year 2005
Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business
Expanded Family Range (Dollars) |
Current Law Tax (millions) |
CSHB 1365 Tax (millions) |
Change in Tax (Millions) |
Percent Change in Tax | |||
1 |
$ 0 |
to |
$14,897 |
$2,273.1 |
$2,280.9 |
$ 7.8 |
0.34% |
2 |
$14,897 |
to |
$27,719 |
2,579.1 |
2,585.1 |
6.0 |
0.23% |
3 |
$27,719 |
to |
$40,781 |
2,906.9 |
2,915.2 |
8.3 |
0.29% |
4 |
$40,781 |
to |
$54,624 |
3,563.0 |
3,572.6 |
9.6 |
0.27% |
5 |
$54,624 |
to |
$68,751 |
3,979.1 |
3,988.6 |
9.5 |
0.24% |
6 |
$68,751 |
to |
$84,751 |
4,495.7 |
4,507.6 |
11.9 |
0.26% |
7 |
$84,751 |
to |
$104,282 |
5,113.5 |
5,126.5 |
13.0 |
0.25% |
8 |
$104,282 |
to |
$130,601 |
5,923.5 |
5,935.4 |
11.9 |
0.20% |
9 |
$130,601 |
to |
$175,790 |
7,551.8 |
7,573.2 |
21.4 |
0.28% |
10 |
Over |
|
$175,790 |
10,028.9 |
10,052.5 |
23.6 |
0.24% |
|
Total |
|
|
$48,414.6 |
$48,537.6 |
0.25% |
House Bill 1365, As Substituted would increase the taxes of all households by $103 million in fiscal year 2004 and decrease taxes of all households by $123 million in 2005. The difference fiscal year 2004 between the initial increase in revenue of $111.2 million and increase of $103 million in tax incidence is primarily due to the exporting of some of the tax savings 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 2005.
Table 4a
Effective Tax Rate by Income Decile
Current Law vs. House Bill 1365, As Substituted
Fiscal Year 2004
Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business
Expanded Family Range (Dollars) |
Current Law Effective Rate |
CSHB1365 Effective Rate |
Current Law Effective Rate Less CSHB1365 Effective Rate |
Percent Change in Effective Rate | |||
1 |
$ 0 |
to |
$14,412 |
33.48% |
33.60% |
0.12% |
0.36% |
2 |
$14,412 |
to |
$26,816 |
14.00% |
14.03% |
0.03% |
0.21% |
3 |
$26,816 |
to |
$39,453 |
9.72% |
9.75% |
0.03% |
0.31% |
4 |
$39,453 |
to |
$52,844 |
8.62% |
8.65% |
0.03% |
0.35% |
5 |
$52,844 |
to |
$66,511 |
7.41% |
7.43% |
0.02% |
0.27% |
6 |
$66,511 |
to |
$81,990 |
6.70% |
6.72% |
0.02% |
0.30% |
7 |
$81,990 |
to |
$100,884 |
6.29% |
6.31% |
0.02% |
0.32% |
8 |
$100,884 |
to |
$126,345 |
5.77% |
5.78% |
0.01% |
0.17% |
9 |
$126,345 |
to |
$170,062 |
5.64% |
5.65% |
0.01% |
0.18% |
10 |
Over |
|
$170,062 |
4.12% |
4.13% |
0.01% |
0.24% |
|
Total |
|
|
6.22% |
6.23% |
0.01% |
Table 4b
Effective Tax Rate by Income Decile
Current Law vs. House Bill 1365, As Substituted
Fiscal Year 2005
Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business
Expanded Family Range (Dollars) |
Current Law Effective Rate |
CSHB1365 Effective Rate |
Current Law Effective Rate Less CSHB1365 Effective Rate |
Percent Change in Effective Rate | |||
1 |
$ 0 |
to |
$14,897 |
35.50% |
35.63% |
0.13% |
0.37% |
2 |
$14,897 |
to |
$27,719 |
14.98% |
15.01% |
0.03% |
0.20% |
3 |
$27,719 |
to |
$40,781 |
10.43% |
10.46% |
0.03% |
0.29% |
4 |
$40,781 |
to |
$54,624 |
9.29% |
9.31% |
0.02% |
0.22% |
5 |
$54,624 |
to |
$68,751 |
7.98% |
8.00% |
0.02% |
0.25% |
6 |
$68,751 |
to |
$84,751 |
7.21% |
7.23% |
0.02% |
0.28% |
7 |
$84,751 |
to |
$104,282 |
6.79% |
6.81% |
0.02% |
0.29% |
8 |
$104,282 |
to |
$130,601 |
6.17% |
6.18% |
0.01% |
0.16% |
9 |
$130,601 |
to |
$175,790 |
6.13% |
6.15% |
0.02% |
0.33% |
10 |
Over |
|
$175,790 |
4.38% |
4.39% |
0.01% |
0.23% |
|
Total |
|
|
6.67% |
6.69% |
0.02% |
Source Agencies: | |
LBB Staff: | JK, JO, WP
|