| TO: | Honorable Steve Ogden, Chair, Senate Committee on Finance |
| FROM: | John S. O'Brien, Deputy Director, Legislative Budget Board |
| IN RE: | HB3 by Keffer, Jim (Relating to property tax relief and protection of taxpayers, taxes and fees, and other matters relating to the financing of public schools; providing civil and criminal penalties.), As Engrossed |
House Bill 3, As Engrossed: Summary of Elements
Revenue Changes
· Increase state sales tax rate to 7.25 percent.
· Expand sales tax to include bottled water, billboard advertising, auto repair, washes and detailing, and elective cosmetic surgery.
· Exempt diapers and parking at certain facilities from sales tax.
· Increase motor vehicle sales, motor vehicle rental over 30 days and boat and boat motor sales tax rates to 7.35 percent. Require presumptive value of certain motor vehicle transactions.
· Impose three percent tax on certain snack foods.
· Increase cigarette tax rate to $1.42 per pack.
· Increase tax rate on certain other tobacco products.
· Impose revised franchise tax at 1.15 percent rate on certain payroll; require most taxpayers to pay lesser of revised franchise tax or current franchise tax.
· Expand current franchise tax to include certain non-corporations.
· Repeal revenue limit of the Telecommunications Infrastructure Fund.
· Require real property sales price disclosure on certain transactions.
· Reduce cap on school district maintenance and operations tax rate to $1.00 per $100 valuation.
Dollar Value of Revenue Changes in Fiscal 2007
· $5,666.3 million property tax reduction, $3,978.0 million increase in other state and local taxes, $1,688.3 million net tax decrease (this amount does not include dynamic revenue impacts).
Initial Impact in Fiscal 2007
· Net reduction to business, net increase to individuals.
Major Industry Initial Impact in Fiscal 2007
· Largest dollar decrease: $953.2 million to the finance, insurance and real estate industry; largest percentage decrease in overall tax liability: 12.2 percent, to the finance, insurance and real estate industry.
· Largest dollar increase: $308.4 million to the service industry; largest percentage increase in overall tax liability: 5.6 percent, to the service industry.
Final Incidence of Changes Effective in Fiscal 2007
· Lowest income level ($0 to low $10,000s income range):
$61.4 million increase, or 3.1 percent.
· Middle income level (low $40,000s to low $50,000s income range):
$62.0 million increase, or 1.5 percent.
· Highest income level (low $140,000s and above):
$798.4 million decrease, or 5.7 percent.
Initial Tax Impact by Industry:
House Bill 3, As Engrossed, was analyzed using the LBB’s multi-tax model to determine the initial impact of the proposed changes relative to current state and local tax law. The results of the analysis are shown in Table 2 below.
Table 2
Comparison of Initial Tax Impact under
Current Law vs. House Bill 3, As Engrossed
Fiscal Year 2007
|
Current Law (millions) |
Share of Total |
HB 3 Liability (millions) |
Share of Total |
Dollar Change (millions) |
Percent Change from Current Law | ||
|
Agriculture |
690.2 |
2.05% |
$ 612.8 |
1.94% |
($ 77.4) |
(11.21)% | |
|
Mining |
3,782.8 |
11.23% |
3,564.7 |
11.29% |
( 218.1) |
10.31% |
(5.77)% |
|
Utilities and Trans. |
4,177.6 |
12.40% |
3,868.3 |
12.26% |
( 309.3) |
14.62% |
(7.40)% |
|
Construction |
1,128.7 |
3.35% |
1,161.6 |
3.68% |
32.9 |
(1.55)% |
2.91% |
|
Manufacturing |
4,636.7 |
13.77% |
4,137.3 |
13.11% |
( 499.4) |
23.60% |
(10.77)% |
|
Trade |
3,028.0 |
8.99% |
2,789.8 |
8.84% |
( 238.2) |
11.26% |
(7.87)% |
|
Information |
2,866.5 |
8.51% |
2,704.7 |
8.57% |
( 161.8) |
7.65% |
(5.64)% |
|
Fin., Ins., Real Estate |
7,817.7 |
23.21% |
6,864.5 |
21.75% |
( 953.2) |
45.05% |
(12.19)% |
|
Services |
5,552.4 |
16.49% |
5,860.8 |
18.57% |
308.4 |
(14.57)% |
5.55% |
|
Subtotal Industry |
$33,680.6 |
100.0% |
$31,564.5 |
100.0% |
($2,116.1) |
100.0% |
(6.28)% |
|
|
|
|
|
|
| ||
|
Individuals/Consumers |
|
|
|
|
|
|
|
|
Residential, Single Family |
$16,186.7 |
|
$13,509.3 |
|
($2,677.4) |
|
(16.54)% |
|
Sales & Excise Taxes |
$17,708.0 |
|
$20,813.2 |
|
$3,105.2 |
|
17.54% |
|
Total Taxes on Individuals |
$33,894.7 |
|
$34,322.5 |
|
$ 427.8 |
|
1.26% |
|
|
|
|
|
|
|
|
|
|
Total – All Taxes |
$67,575.3 |
|
$65,887.0 |
|
|
(2.50)% |
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. Over time, 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, and the amount of time that elapses before a tax can be shifted, depend on the type of tax and the competitiveness of capital, labor, input material and product markets.
The results of this analysis for tax law changes effective with this proposal are shown in Table 3 and Table 4.
Table 3
Tax Incidence by Income Decile
Current Law vs. House Bill 3, As Engrossed
Taxes Effective in Fiscal Year 2007
Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business
|
Expanded Family Range (Dollars) |
Current Law Tax (millions) |
HB 3 Tax (millions) |
Change in Tax (Millions) |
Percent Change in Tax | |||
|
1 |
$0 |
to |
$13,415 |
$2,009.5 |
$2,070.9 |
$ 61.4 |
3.06% |
|
2 |
$13,415 |
to |
$22,833 |
2,315.9 |
2,367.7 |
51.8 |
2.24% |
|
3 |
$22,833 |
to |
$31,735 |
2,999.9 |
3,064.8 |
64.9 |
2.16% |
|
4 |
$31,735 |
to |
$41,463 |
3,303.0 |
3,367.0 |
64.0 |
1.94% |
|
5 |
$41,463 |
to |
$51,750 |
4,076.2 |
4,138.2 |
62.0 |
1.52% |
|
6 |
$51,750 |
to |
$64,325 |
4,734.5 |
4,783.8 |
49.3 |
1.04% |
|
7 |
$64,325 |
to |
$79,271 |
5,679.8 |
5,671.4 |
( 8.4) |
(0.15)% |
|
8 |
$79,271 |
to |
$100,593 |
6,860.2 |
6,786.2 |
( 74.0) |
(1.08)% |
|
9 |
$100,593 |
to |
$140,853 |
8,547.9 |
8,274.4 |
( 273.5) |
(3.20)% |
|
10 |
Over |
|
$140,853 |
13,910.3 |
13,111.9 |
( 798.4) |
(5.74)% |
|
|
Total |
|
|
$54,437.2 |
$53,636.3 |
(1.47)% | |
House Bill 3, As Engrossed would ultimately decrease the taxes of all households by $800.9 million for tax law changes effective in 2007. The difference between the initial reduction in revenue of $1,688.3 million in fiscal 2007 and the ultimate reduction of $800.9 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. House Bill 3, As Engrossed
Taxes Effective in Fiscal Year 2007
Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business
|
Expanded Family Range (Dollars) |
Current Law Effective Rate |
HB3 Effective Rate |
Current Law Effective Rate Less HB 3 Effective Rate |
Percent Change in Effective Rate | |||
|
1 |
$0 |
to |
$13,415 |
32.52% |
33.51% |
0.99% |
3.04% |
|
2 |
$13,415 |
to |
$22,833 |
15.26% |
15.60% |
0.34% |
2.23% |
|
3 |
$22,833 |
to |
$31,735 |
12.90% |
13.18% |
0.28% |
2.17% |
|
4 |
$31,735 |
to |
$41,463 |
11.02% |
11.23% |
0.21% |
1.91% |
|
5 |
$41,463 |
to |
$51,750 |
9.97% |
10.13% |
0.16% |
1.60% |
|
6 |
$51,750 |
to |
$64,325 |
9.61% |
9.71% |
0.10% |
1.04% |
|
7 |
$64,325 |
to |
$79,271 |
9.32% |
9.31% |
( 0.01)% |
(0.11)% |
|
8 |
$79,271 |
to |
$100,593 |
9.03% |
8.93% |
( 0.10)% |
(1.11)% |
|
9 |
$100,593 |
to |
$140,853 |
8.52% |
8.25% |
( 0.27)% |
(3.17)% |
|
10 |
Over |
|
$140,853 |
6.62% |
6.24% |
( 0.38)% |
(5.74)% |
|
|
Total |
|
|
8.90% |
8.77% |
( 0.13)% |
|
| Source Agencies: |
| LBB Staff: | JOB, SD, WP
|