TO: | Honorable Rodney Ellis, Chair, Senate Committee on Government Organization |
FROM: | John Keel, Director, Legislative Budget Board |
IN RE: | SB659 by Brimer (Relating to the creation of the economic development coordinator; the abolition of the Texas Department of Economic Development and the transfer of its functions to the economic development coordinator; and the establishment of economic and business development programs to be administered by the economic development coordinator.), As Introduced |
Senate Bill 659: Summary of Elements
Tax Changes
· Increase certain franchise tax credits, and expand certain franchise tax credit eligibility to the state as a whole. Most of the changes are effective September 1, 2003.
Revenue Decreases
· $87.1 million in fiscal year 2004
· $120.9 million in fiscal year 2005
Initial Impact
· 100.0 percent to business in fiscal years 2004 and 2005
Major Industry Initial Impact
· Largest dollar savings: $70.5 million in fiscal year 2004 and $97.9 million in fiscal year 2005, to the manufacturing industry.
· Largest percentage decline in overall tax liability: 1.1 percent in fiscal year 2004 and 1.4 percent in fiscal year 2005, to the manufacturing industry.
Net Revenue Impact After Dynamic Analysis
· $85.9 million decrease in fiscal year 2004
· $118.6 million decrease in fiscal year 2005
Final Tax Incidence
· Fiscal 2004 impact to the middle income level (low $50,000s to mid $60,000s): $5.1 million decrease, or 0.15 percent.
· Fiscal 2005 impact to the middle income level (mid $50,000s to high $60,000s): $7.2 million decrease, or 0.19 percent.
Initial Tax Impact by Industry:
Senate Bill 659, 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.
Current Law vs. Senate Bill 659, As Introduced
Fiscal Year 2004
Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business
Current Law (millions) |
Share of Total |
SB 659 Liability (millions) |
Share of Total |
Dollar Change (millions) |
Percent Change from Current Law | ||
Agriculture |
495.3 |
1.7% |
$ 495.3 |
1.7% |
$ 0.0 |
0.00% | |
Mining |
3,017.6 |
10.2% |
3,017.6 |
10.2% |
0.0 |
0.0% |
0.00% |
Construction |
943.5 |
3.2% |
943.5 |
3.2% |
0.0 |
0.0% |
0.00% |
Manufacturing |
6,558.5 |
22.2% |
6,488.0 |
22.0% |
( 70.5) |
80.9% |
(1.07)% |
Transportation/Utilities |
5,745.9 |
19.4% |
5,741.5 |
19.5% |
( 4.4) |
5.1% |
(0.08)% |
Wholesale Trade |
1,295.1 |
4.4% |
1,291.6 |
4.4% |
( 3.5) |
4.0% |
(0.27)% |
Retail Trade |
1,694.0 |
5.7% |
1,690.5 |
5.7% |
( 3.5) |
4.0% |
(0.21)% |
Fin., Ins., Real Estate |
5,622.8 |
19.0% |
5,622.8 |
19.1% |
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% |
2,297.4 |
7.8% |
( 5.2) |
6.0% |
(0.23)% |
Not Classified |
299.9 |
1.0% |
299.9 |
1.0% |
0.0 |
0.0% |
0.00% |
Subtotal Industry |
$29,563.6 |
100.0% |
$29,476.5 |
100.0% |
100.0% |
(0.29)% | |
|
|
|
|
|
|
| |
Individuals/Consumers |
|
|
|
|
|
|
|
Residential, Owner Occupied |
$13,296.2 |
|
$13,296.2 |
|
0.0 |
|
0.00% |
Sales & Excise Taxes |
$10,618.8 |
|
$10,618.8 |
|
0.0 |
|
0.00% |
Other Taxes on Individuals |
$ 519.2 |
|
$ 519.2 |
|
0.0 |
|
0.00% |
Total Taxes on Individuals |
$24,434.2 |
|
$24,434.2 |
|
0.0 |
|
0.00% |
|
|
|
|
|
|
|
|
Total – All Taxes |
$53,997.8 |
|
$53,910.7 |
|
|
(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. Senate Bill 659, As Introduced
Fiscal Year 2005
Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business
Current Law (millions) |
Share of Total |
SB 659 Liability (millions) |
Share of Total |
Dollar Change (millions) |
Percent Change from Current Law | ||
Agriculture |
512.9 |
1.7% |
$ 512.9 |
1.7% |
$ 0.0 |
0.0% | |
Mining |
3,038.5 |
9.8% |
3,038.5 |
9.9% |
0.0 |
0.0% |
0.0% |
Construction |
983.8 |
3.2% |
983.8 |
3.2% |
0.0 |
0.0% |
0.0% |
Manufacturing |
6,884.1 |
22.2% |
6,786.2 |
22.0% |
( 97.9) |
81.0% |
(1.4)% |
Transportation/Utilities |
6,053.8 |
19.6% |
6,047.8 |
19.6% |
( 6.0) |
5.0% |
(0.1)% |
Wholesale Trade |
1,361.3 |
4.4% |
1,356.5 |
4.4% |
( 4.8) |
4.0% |
(0.4)% |
Retail Trade |
1,781.3 |
5.8% |
1,776.4 |
5.8% |
( 4.9) |
4.1% |
(0.3)% |
Fin., Ins., Real Estate |
5,873.6 |
19.0% |
5,873.6 |
19.0% |
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% |
2,429.1 |
7.9% |
( 7.3) |
6.0% |
(0.3)% |
Not Classified |
324.6 |
1.0% |
324.6 |
1.1% |
0.0 |
0.0% |
0.0% |
Subtotal Industry |
$30,957.1 |
100.1% |
$30,836.2 |
1.0% |
($ 120.9) |
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 |
|
$11,056.1 |
|
0.0 |
|
0.0% |
Other Taxes on Individuals |
$ 463.0 |
|
$ 463.0 |
|
0.0 |
|
0.0% |
Total Taxes on Individuals |
$25,732.1 |
|
$25,732.1 |
|
0.0 |
|
0.0% |
|
|
|
|
|
|
|
|
Total – All Taxes |
$56,689.2 |
|
$56,568.3 |
|
|
(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
Current Law vs. Senate Bill 659, As Introduced
Fiscal Year 2004
Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business
Expanded Family Range (Dollars) |
Current Law Tax (millions) |
SB 659 Tax (millions) |
Change in Tax (Millions) |
Percent Change in Tax | |||
1 |
$ 0 |
to |
$14,412 |
$2,037.7 |
$2,034.5 |
($ 3.2) |
(0.16)% |
2 |
$14,412 |
to |
$26,816 |
2,291.2 |
2,287.5 |
( 3.7) |
(0.16)% |
3 |
$26,816 |
to |
$39,453 |
2,575.6 |
2,571.7 |
( 3.9) |
(0.15)% |
4 |
$39,453 |
to |
$52,844 |
3,145.2 |
3,140.3 |
( 4.9) |
(0.16)% |
5 |
$52,844 |
to |
$66,511 |
3,512.3 |
3,507.2 |
( 5.1) |
(0.15)% |
6 |
$66,511 |
to |
$81,990 |
3,971.0 |
3,965.4 |
( 5.6) |
(0.14)% |
7 |
$81,990 |
to |
$100,884 |
4,501.3 |
4,494.9 |
( 6.4) |
(0.14)% |
8 |
$100,884 |
to |
$126,345 |
5,271.2 |
5,263.9 |
( 7.3) |
(0.14)% |
9 |
$126,345 |
to |
$170,062 |
6,599.6 |
6,591.2 |
( 8.4) |
(0.13)% |
10 |
Over |
|
$170,062 |
8,969.1 |
8,957.3 |
( 11.8) |
(0.13)% |
|
Total |
|
|
$42,874.2 |
$42,813.9 |
(0.14)% |
Table 3b
Tax Incidence by Income Decile
Current Law vs. Senate Bill 659, As Introduced
Fiscal Year 2005
Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business
Expanded Family Range (Dollars) |
Current Law Tax (millions) |
SB 659 Tax (millions) |
Change in Tax (Millions) |
Percent Change in Tax | |||
1 |
$ 0 |
to |
$14,897 |
$2,138.6 |
$2,134.2 |
($ 4.4) |
(0.21)% |
2 |
$14,897 |
to |
$27,719 |
2,414.5 |
2,409.4 |
( 5.1) |
(0.21)% |
3 |
$27,719 |
to |
$40,781 |
2,718.8 |
2,713.4 |
( 5.4) |
(0.20)% |
4 |
$40,781 |
to |
$54,624 |
3,317.6 |
3,310.9 |
( 6.7) |
(0.20)% |
5 |
$54,624 |
to |
$68,751 |
3,700.2 |
3,693.0 |
( 7.2) |
(0.19)% |
6 |
$68,751 |
to |
$84,751 |
4,178.4 |
4,170.6 |
( 7.8) |
(0.19)% |
7 |
$84,751 |
to |
$104,282 |
4,748.7 |
4,739.8 |
( 8.9) |
(0.19)% |
8 |
$104,282 |
to |
$130,601 |
5,513.3 |
5,503.2 |
( 10.1) |
(0.18)% |
9 |
$130,601 |
to |
$175,790 |
6,996.2 |
6,984.6 |
( 11.6) |
(0.17)% |
10 |
Over |
|
$175,790 |
9,399.9 |
9,383.5 |
( 16.4) |
(0.17)% |
|
Total |
|
|
$45,126.2 |
$45,042.6 |
(0.19)% |
Senate Bill 659, As Introduced would decrease the taxes of all households by $60.3 million in fiscal year 2004 and decrease taxes of all households by $83.6 million in 2005. The difference fiscal year 2004 between the initial reduction in revenue of $87.1 million and reduction of $60.3 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. Senate Bill 659, As Introduced
Fiscal Year 2004
Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business
Expanded Family Range (Dollars) |
Current Law Effective Rate |
SB659 Effective Rate |
Current Law Effective Rate Less SB659 Effective Rate |
Percent Change in Effective Rate | |||
1 |
$ 0 |
to |
$14,412 |
33.48% |
33.43% |
( 0.05)% |
(0.15)% |
2 |
$14,412 |
to |
$26,816 |
14.00% |
13.98% |
( 0.02)% |
(0.14)% |
3 |
$26,816 |
to |
$39,453 |
9.72% |
9.71% |
( 0.01)% |
(0.10)% |
4 |
$39,453 |
to |
$52,844 |
8.62% |
8.61% |
( 0.01)% |
(0.12)% |
5 |
$52,844 |
to |
$66,511 |
7.41% |
7.40% |
( 0.01)% |
(0.13)% |
6 |
$66,511 |
to |
$81,990 |
6.70% |
6.69% |
( 0.01)% |
(0.15)% |
7 |
$81,990 |
to |
$100,884 |
6.29% |
6.28% |
( 0.01)% |
(0.16)% |
8 |
$100,884 |
to |
$126,345 |
5.77% |
5.77% |
0.00% |
0.00% |
9 |
$126,345 |
to |
$170,062 |
5.64% |
5.63% |
( 0.01)% |
(0.18)% |
10 |
Over |
|
$170,062 |
4.12% |
4.12% |
0.00% |
0.00% |
|
Total |
|
|
6.22% |
6.21% |
( 0.01)% |
Effective Tax Rate by Income Decile
Current Law vs. Senate Bill 659, As Introduced
Fiscal Year 2005
Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business
Expanded Family Range (Dollars) |
Current Law Effective Rate |
SB659 Effective Rate |
Current Law Effective Rate Less SB659 Effective Rate |
Percent Change in Effective Rate | |||
1 |
$ 0 |
to |
$14,897 |
33.40% |
33.33% |
( 0.07)% |
(0.21)% |
2 |
$14,897 |
to |
$27,719 |
14.02% |
13.99% |
( 0.03)% |
(0.21)% |
3 |
$27,719 |
to |
$40,781 |
9.76% |
9.74% |
( 0.02)% |
(0.20)% |
4 |
$40,781 |
to |
$54,624 |
8.65% |
8.63% |
( 0.02)% |
(0.23)% |
5 |
$54,624 |
to |
$68,751 |
7.42% |
7.41% |
( 0.01)% |
(0.13)% |
6 |
$68,751 |
to |
$84,751 |
6.70% |
6.69% |
( 0.01)% |
(0.15)% |
7 |
$84,751 |
to |
$104,282 |
6.31% |
6.30% |
( 0.01)% |
(0.16)% |
8 |
$104,282 |
to |
$130,601 |
5.74% |
5.73% |
( 0.01)% |
(0.17)% |
9 |
$130,601 |
to |
$175,790 |
5.68% |
5.67% |
( 0.01)% |
(0.18)% |
10 |
Over |
|
$175,790 |
4.11% |
4.10% |
( 0.01)% |
(0.24)% |
|
Total |
|
|
6.22% |
6.21% |
( 0.01)% |
Source Agencies: | |
LBB Staff: | JK, WP
|