| TO: | Honorable John Whitmire, Chair, Committee of the Whole Senate |
| FROM: | John Keel, Director, Legislative Budget Board |
| IN RE: | SJR1 by Shapiro (Proposing a constitutional amendment to provide financial support for public education by creating the Texas education fund, authorizing a state property tax, increasing the state general sales and use tax rate, expanding the general sales and use tax base to include certain services, increasing the state motor vehicle sales and use tax rate, abolishing the school district property tax for maintenance and operations purposes, dedicating the proceeds of any state lottery to public education, and authorizing a school district property tax for the purpose of educational enrichment.), Committee Report 1st House, Substituted |
· Eliminate school district M&O taxes; impose state property tax at $0.75 per $100 valuation, effective January 1, 2004. 75 percent of the tax savings due to owners of residential rental property is distributed to renters of such property.
· Expand state sales tax base (for all taxpayers except Lone Star Card holders) by including most services, except medical services, effective July 1, 2004.
· Increase state sales tax rate to 7.25 percent (for all taxpayers except Lone Star Card holders), effective July 1, 2004.
· Increase motor vehicle sales tax rate to 8.75 percent, effective July 1, 2004.
Revenue Changes
· Fiscal year 2005: $7,049.0 million sales tax increase; $7,411.5 million property tax decrease; $362.5 million net decrease
Major Industry Initial Impact
· Largest dollar savings: $431.9 million in fiscal year 2005, to the residential rental real estate industry.
· Largest percentage decline in overall tax liability: 25.3 percent in fiscal year 2005, to the residential rental real estate industry.
Final Tax Incidence
· Lowest income level ($0 to mid $10,000s income range):
$156.4 million decrease, or 7.1 percent, in fiscal 2005.
· Middle income level (mid $50,000s to high $60,000s income range):
$23.4 million increase, or 0.6 percent, in fiscal year 2005.
· Highest income level (mid $170,000s and above):
$321.5 million decrease, or 3.3 percent, in fiscal year 2005.
Initial Tax Impact by Industry:
Senate Joint Resolution 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 is shown in Table 2 below.
Table 2
Comparison of Initial Tax Impact under
Current Law vs. Senate Joint Resolution 1, As Substituted
Fiscal Year 2005
Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business
|
Current Law (millions) |
Share of Total |
CSSJR 1 Liability (millions) |
Share of Total |
Dollar Change (millions) |
Percent Change from Current Law | ||
|
Agriculture |
512.9 |
1.7% |
$ 431.2 |
1.4% |
($ 81.7) |
(15.9)% | |
|
Mining |
3,038.5 |
9.8% |
3,018.6 |
9.9% |
( 19.9) |
(23.0)% |
(0.7)% |
|
Construction |
983.8 |
3.2% |
1,204.7 |
4.0% |
220.9 |
(0.9)% |
22.5% |
|
Manufacturing |
6,884.1 |
22.2% |
6,993.7 |
23.0% |
109.6 |
(11.5)% |
1.6% |
|
Transportation/Utilities |
6,053.8 |
19.6% |
5,629.6 |
18.5% |
( 424.2) |
44.7% |
(7.0)% |
|
Wholesale Trade |
1,361.3 |
4.4% |
1,400.2 |
4.6% |
38.9 |
(4.1)% |
2.9% |
|
Retail Trade |
1,781.3 |
5.8% |
1,855.6 |
6.1% |
74.3 |
(7.8)% |
4.2% |
|
Fin., Ins., Real Estate |
5,873.6 |
19.0% |
5,600.7 |
18.4% |
( 272.9) |
28.7% |
(4.6)% |
|
Residential Rental* |
1,706.8 |
5.5% |
1,274.9 |
4.2% |
( 431.9) |
45.5% |
(25.3)% |
|
Services |
2,436.4 |
7.9% |
2,731.4 |
9.0% |
295.0 |
(31.1)% |
12.1% |
|
Not Classified |
324.6 |
1.0% |
324.6 |
1.1% |
0.0 |
0.0% |
0.0% |
|
Subtotal Industry |
$30,957.1 |
100.1% |
$30,465.2 |
1.0% |
($ 491.9) |
100.0% |
(1.6)% |
|
|
|
|
|
|
|
| |
|
Individuals/Consumers |
|
|
|
|
|
|
|
|
Residential, Owner Occupied |
$14,213.0 |
|
$11,070.6 |
|
(3,142.4) |
|
(22.1)% |
|
Sales & Excise Taxes |
$11,056.1 |
|
$14,327.9 |
|
3,271.8 |
|
29.6% |
|
Other Taxes on Individuals |
$ 463.0 |
|
$ 463.0 |
|
0.0 |
|
0.0% |
|
Total Taxes on Individuals |
$25,732.1 |
|
$25,861.5 |
|
129.4 |
|
0.5% |
|
|
|
|
|
|
|
|
|
|
Total – All Taxes |
$56,689.2 |
|
$56,326.7 |
|
|
(0.6)% |
* 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 3 and Table 4.
Table 3
Tax Incidence by Income Decile
Current Law vs. Senate Joint Resolution 1, 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) |
CSSJR 1 Tax (millions) |
Change in Tax (Millions) |
Percent Change in Tax | |||
|
1 |
$ 0 |
to |
$14,897 |
$2,203.0 |
$2,046.6 |
($ 156.4) |
(7.1)% |
|
2 |
$14,897 |
to |
$27,719 |
2,504.9 |
2,475.5 |
( 29.4) |
(1.2)% |
|
3 |
$27,719 |
to |
$40,781 |
2,822.9 |
2,792.8 |
( 30.1) |
(1.1)% |
|
4 |
$40,781 |
to |
$54,624 |
3,467.0 |
3,476.1 |
9.1 |
0.3% |
|
5 |
$54,624 |
to |
$68,751 |
3,870.5 |
3,893.9 |
23.4 |
0.6% |
|
6 |
$68,751 |
to |
$84,751 |
4,373.3 |
4,396.5 |
23.2 |
0.5% |
|
7 |
$84,751 |
to |
$104,282 |
4,973.5 |
5,012.4 |
38.9 |
0.8% |
|
8 |
$104,282 |
to |
$130,601 |
5,752.8 |
5,760.9 |
8.1 |
0.1% |
|
9 |
$130,601 |
to |
$175,790 |
7,336.0 |
7,396.3 |
60.3 |
0.8% |
|
10 |
Over |
|
$175,790 |
9,697.8 |
9,376.3 |
( 321.5) |
(3.3)% |
|
|
Total |
|
|
$47,001.7 |
$46,627.3 |
(0.8)% | |
Senate Joint Resolution 1, As Substituted would decrease the taxes of all households by $374.4 million in 2005. The difference in fiscal year 2005 between the initial decrease in revenue of $362.5 million and decrease of $413.3 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.
Effective Tax Rate by Income Decile
Current Law vs. Senate Joint Resolution 1, 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 |
CSSJR1 Effective Rate |
Current Law Effective Rate Less CSSJR1 Effective Rate |
Percent Change in Effective Rate | |||
|
1 |
$ 0 |
to |
$14,897 |
36.20% |
33.73% |
( 2.47)% |
(6.8)% |
|
2 |
$14,897 |
to |
$27,719 |
15.30% |
15.13% |
( 0.17)% |
(1.1)% |
|
3 |
$27,719 |
to |
$40,781 |
10.65% |
10.54% |
( 0.11)% |
(1.0)% |
|
4 |
$40,781 |
to |
$54,624 |
9.51% |
9.53% |
0.02% |
0.2% |
|
5 |
$54,624 |
to |
$68,751 |
8.17% |
8.22% |
0.05% |
0.6% |
|
6 |
$68,751 |
to |
$84,751 |
7.38% |
7.42% |
0.04% |
0.5% |
|
7 |
$84,751 |
to |
$104,282 |
6.95% |
7.01% |
0.06% |
0.9% |
|
8 |
$104,282 |
to |
$130,601 |
6.30% |
6.31% |
0.01% |
0.2% |
|
9 |
$130,601 |
to |
$175,790 |
6.27% |
6.32% |
0.05% |
0.8% |
|
10 |
Over |
|
$175,790 |
4.46% |
4.31% |
( 0.15)% |
(3.4)% |
|
|
Total |
|
|
6.82% |
6.77% |
( 0.05)% |
|
| Source Agencies: | |
| LBB Staff: | JK, SD, WP
|