TO: | Honorable Jim Keffer, Chair, House Committee on Ways & Means |
FROM: | John S. O'Brien, Deputy Director, Legislative Budget Board |
IN RE: | HB5 by Krusee (Relating to the rate of the state gasoline and diesel fuel taxes.), Committee Report 1st House, Substituted |
House Bill 5, As Substituted: Summary of Elements
Revenue Changes
· Index gasoline and diesel fuel tax rates, effective September 1, 2005.
Dollar Value of Revenue Change in Fiscal 2007
· $122.0 million increase
Initial Impact in Fiscal 2007
· 32.2 percent to business, 67.8 percent to individuals
Major Industry Initial Impact in Fiscal 2007
· Largest dollar increase: $11.6 million increase to the manufacturing industry.
· Largest percentage increase in overall tax liability: 25.8 percent to the manufacturing industry.
Final Tax Incidence of Revenue Changes Effective in Fiscal 2007
· Lowest income level ($0 to low $10,000s income range):
$4.2 million increase, or 0.21 percent.
· Middle income level (low $40,000s to low $50,000s income range):
$9.2 million increase, or 0.23 percent.
· Highest income level (low $140,000s and above):
$18.9 million increase, or 0.14 percent.
Initial Tax Impact by Industry:
House Bill 5, As Substituted, 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 5, As Substituted
Fiscal Year 2007
Current Law (millions) |
Share of Total |
HB 5 Liability (millions) |
Share of Total |
Dollar Change (millions) |
Percent Change from Current Law | ||
Agriculture |
690.2 |
2.05% |
$ 690.4 |
2.05% |
$ 0.2 |
0.03% | |
Mining |
3,782.8 |
11.23% |
3,783.5 |
11.22% |
0.7 |
1.56% |
0.02% |
Utilities and Trans. |
4,177.6 |
12.40% |
4,187.0 |
12.41% |
9.4 |
20.89% |
0.23% |
Construction |
1,128.7 |
3.35% |
1,129.2 |
3.35% |
0.5 |
1.11% |
0.04% |
Manufacturing |
4,636.7 |
13.77% |
4,648.3 |
13.78% |
11.6 |
25.78% |
0.25% |
Trade |
3,028.0 |
8.99% |
3,034.7 |
9.00% |
6.7 |
14.89% |
0.22% |
Information |
2,866.5 |
8.51% |
2,867.4 |
8.50% |
0.9 |
2.00% |
0.03% |
Fin., Ins., Real Estate |
7,817.7 |
23.21% |
7,819.0 |
23.18% |
1.3 |
2.89% |
0.02% |
Services |
5,552.4 |
16.49% |
5,560.4 |
16.49% |
8.0 |
17.78% |
0.14% |
Subtotal Industry |
$33,680.6 |
100.0% |
$33,719.9 |
100.0% |
$ 39.3 |
87.3% |
0.12% |
|
|
|
|
|
|
| |
Individuals/Consumers |
|
|
|
|
|
|
|
Residential, Single Family |
$16,186.7 |
|
$16,186.7 |
|
$ 0.0 |
|
0.00% |
Sales & Excise Taxes |
$17,708.0 |
|
$17,790.7 |
|
$ 82.7 |
|
0.47% |
Total Taxes on Individuals |
$33,894.7 |
|
$33,977.4 |
|
$ 82.7 |
|
0.24% |
|
|
|
|
|
|
|
|
Total – All Taxes |
$67,575.3 |
|
$67,697.3 |
|
|
0.18% |
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 5, As Substituted
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 5 Tax (millions) |
Change in Tax (Millions) |
Percent Change in Tax | |||
1 |
$0 |
to |
$13,415 |
$2,000.4 |
$2,004.6 |
$ 4.2 |
0.21% |
2 |
$13,415 |
to |
$22,833 |
2,308.3 |
2,313.2 |
4.9 |
0.21% |
3 |
$22,833 |
to |
$31,735 |
2,991.3 |
2,997.6 |
6.3 |
0.21% |
4 |
$31,735 |
to |
$41,463 |
3,292.4 |
3,299.9 |
7.5 |
0.23% |
5 |
$41,463 |
to |
$51,750 |
4,064.7 |
4,073.9 |
9.2 |
0.23% |
6 |
$51,750 |
to |
$64,325 |
4,717.9 |
4,728.0 |
10.1 |
0.21% |
7 |
$64,325 |
to |
$79,271 |
5,655.6 |
5,667.1 |
11.5 |
0.20% |
8 |
$79,271 |
to |
$100,593 |
6,824.7 |
6,838.0 |
13.3 |
0.19% |
9 |
$100,593 |
to |
$140,853 |
8,486.3 |
8,501.4 |
15.1 |
0.18% |
10 |
Over |
|
$140,853 |
13,800.3 |
13,819.2 |
18.9 |
0.14% |
|
Total |
|
|
$54,141.9 |
$54,242.9 |
0.19% |
House Bill 5, As Substituted would ultimately decrease the taxes of all households by $101.0 million for tax law changes effective in 2007. The difference between the initial increase in revenue of $122.0 million in fiscal 2007 and the ultimate increase of $101.0 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 5, As Substituted
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 |
HB5 Effective Rate |
Current Law Effective Rate Less HB 5 Effective Rate |
Percent Change in Effective Rate | |||
1 |
$0 |
to |
$13,415 |
32.37% |
32.44% |
0.07% |
0.22% |
2 |
$13,415 |
to |
$22,833 |
15.21% |
15.24% |
0.03% |
0.20% |
3 |
$22,833 |
to |
$31,735 |
12.87% |
12.89% |
0.02% |
0.16% |
4 |
$31,735 |
to |
$41,463 |
10.98% |
11.01% |
0.03% |
0.27% |
5 |
$41,463 |
to |
$51,750 |
9.95% |
9.97% |
0.02% |
0.20% |
6 |
$51,750 |
to |
$64,325 |
9.58% |
9.60% |
0.02% |
0.21% |
7 |
$64,325 |
to |
$79,271 |
9.28% |
9.30% |
0.02% |
0.22% |
8 |
$79,271 |
to |
$100,593 |
8.98% |
9.00% |
0.02% |
0.22% |
9 |
$100,593 |
to |
$140,853 |
8.46% |
8.47% |
0.01% |
0.12% |
10 |
Over |
|
$140,853 |
6.57% |
6.58% |
0.01% |
0.15% |
|
Total |
|
|
8.85% |
8.87% |
0.02% |
Source Agencies: |
LBB Staff: | JOB, SD, WP, SJS
|