| TO: | Honorable Jim Keffer, Chair, House Committee on Ways & Means |
| 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 Introduced |
House Bill 3, As Introduced: Summary of Elements
Revenue Changes
· Expand sales tax to include newspapers, newspaper inserts and magazines, effective September 1, 2005.
· Increase cigarette tax rate to $1.41 per pack, effective September 1, 2005.
· Eliminate corporate franchise tax, effective January 1, 2005.
· Raise revenue limit of the Telecommunications Infrastructure Fund to $1.76 billion, effective September 1, 2005.
· Reduce school district maintenance and operations (M&O) tax rate cap to $1.00 per $100 valuation, effective January 1, 2007.
NOTE: To show the full year comparison of all provisions, this analysis reflects the reduction in the school district M&O tax rate cap as if it were effective January 1, 2006.
Dollar Value of Revenue Changes
· $6,674.3 million reduction in fiscal year 2007 (see property tax note above).
Initial Impact
· 72.9 percent to business, 27.1 percent to individuals in fiscal year 2007.
Major Industry Initial Impact
· Largest dollar decrease: $1,239.0 million reduction in fiscal 2007 to the finance, insurance and real estate industry.
· Largest percentage decrease in overall tax liability: 25.4 percent in fiscal 2007, to the finance, insurance and real estate industry.
Final Tax Incidence
· Lowest income level ($0 to low $10,000s income range):
$101.2 million decrease, or 5.1 percent, in fiscal year 2007.
· Middle income level (low $40,000s to low $50,000s income range):
$266.7 million decrease, or 6.6 percent, in fiscal year2007.
· Highest income level (low $140,000s and above):
$1,718.9 million decrease, or 12.4 percent, in fiscal year 2007.
Initial Tax Impact by Industry:
House Bill 3, As Introduced, 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 Introduced
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 |
677.8 |
2.01% |
$ 579.9 |
2.01% |
($ 97.9) |
(14.44)% | |
|
Mining |
3,792.1 |
11.27% |
3,429.0 |
11.91% |
( 363.1) |
7.46% |
(9.58)% |
|
Utilities and Trans. |
4,183.9 |
12.43% |
3,594.9 |
12.49% |
( 589.0) |
12.10% |
(14.08)% |
|
Construction |
1,128.9 |
3.35% |
1,016.9 |
3.53% |
( 112.0) |
2.30% |
(9.92)% |
|
Manufacturing |
4,647.6 |
13.81% |
3,769.9 |
13.10% |
( 877.7) |
18.03% |
(18.89)% |
|
Trade |
3,031.8 |
9.01% |
2,364.2 |
8.21% |
( 667.6) |
13.71% |
(22.02)% |
|
Information |
2,871.2 |
8.53% |
2,472.2 |
8.59% |
( 399.0) |
8.20% |
(13.90)% |
|
Fin., Ins., Real Estate |
7,763.1 |
23.07% |
6,524.1 |
22.67% |
(1,239.0) |
25.45% |
(15.96)% |
|
Services |
5,556.5 |
16.51% |
5,033.1 |
17.49% |
( 523.4) |
10.75% |
(9.42)% |
|
Subtotal Industry |
$33,652.9 |
100.0% |
$28,784.2 |
100.0% |
($4,868.7) |
100.0% |
(14.47)% |
|
|
|
|
|
|
| ||
|
Individuals/Consumers |
|
|
|
|
|
|
|
|
Residential, Single Family |
$15,885.3 |
|
$13,286.4 |
|
($2,598.9) |
|
(16.36)% |
|
Sales & Excise Taxes |
$17,708.0 |
|
$18,501.3 |
|
$ 793.3 |
|
4.48% |
|
Total Taxes on Individuals |
$33,593.3 |
|
$31,787.7 |
|
($1,805.6) |
|
(5.37)% |
|
|
|
|
|
|
|
|
|
|
Total – All Taxes |
$67,246.2 |
|
$60,571.9 |
|
|
(9.93)% |
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 Introduced
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 |
$1,998.5 |
$1,897.3 |
($ 101.2) |
(5.06)% |
|
2 |
$13,415 |
to |
$22,833 |
2,304.4 |
2,166.6 |
( 137.8) |
(5.98)% |
|
3 |
$22,833 |
to |
$31,735 |
2,986.1 |
2,804.4 |
( 181.7) |
(6.08)% |
|
4 |
$31,735 |
to |
$41,463 |
3,287.6 |
3,088.8 |
( 198.8) |
(6.05)% |
|
5 |
$41,463 |
to |
$51,750 |
4,058.4 |
3,791.7 |
( 266.7) |
(6.57)% |
|
6 |
$51,750 |
to |
$64,325 |
4,713.3 |
4,382.2 |
( 331.1) |
(7.02)% |
|
7 |
$64,325 |
to |
$79,271 |
5,653.5 |
5,196.7 |
( 456.8) |
(8.08)% |
|
8 |
$79,271 |
to |
$100,593 |
6,826.2 |
6,230.2 |
( 596.0) |
(8.73)% |
|
9 |
$100,593 |
to |
$140,853 |
8,498.4 |
7,614.8 |
( 883.6) |
(10.40)% |
|
10 |
Over |
|
$140,853 |
13,823.3 |
12,104.4 |
(1,718.9) |
(12.43)% |
|
|
Total |
|
|
$54,149.7 |
$49,277.1 |
(9.00)% | |
House Bill 3, As Introduced would ultimately decrease the taxes of all households by $4,872.6 million for tax law changes effective in 2007. The difference between the initial reduction in revenue of $6,674.3 million in fiscal 2007 and the ultimate reduction of $4,872.6 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 Introduced
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 |
32.34% |
30.70% |
( 1.64)% |
(5.07)% |
|
2 |
$13,415 |
to |
$22,833 |
15.19% |
14.28% |
( 0.91)% |
(5.99)% |
|
3 |
$22,833 |
to |
$31,735 |
12.84% |
12.06% |
( 0.78)% |
(6.07)% |
|
4 |
$31,735 |
to |
$41,463 |
10.97% |
10.30% |
( 0.67)% |
(6.11)% |
|
5 |
$41,463 |
to |
$51,750 |
9.93% |
9.28% |
( 0.65)% |
(6.55)% |
|
6 |
$51,750 |
to |
$64,325 |
9.57% |
8.90% |
( 0.67)% |
(7.00)% |
|
7 |
$64,325 |
to |
$79,271 |
9.28% |
8.53% |
( 0.75)% |
(8.08)% |
|
8 |
$79,271 |
to |
$100,593 |
8.98% |
8.20% |
( 0.78)% |
(8.69)% |
|
9 |
$100,593 |
to |
$140,853 |
8.47% |
7.59% |
( 0.88)% |
(10.39)% |
|
10 |
Over |
|
$140,853 |
6.58% |
5.76% |
( 0.82)% |
(12.46)% |
|
|
Total |
|
|
8.85% |
8.05% |
( 0.80)% |
|
| Source Agencies: |
| LBB Staff: | JOB, SD, WP
|