Table 1

Senate Bill 3, As Introduced:  Summary of Elements

Revenue Changes

·               Impose $0.13 fee per 1,000 gallons of water delivered by public utility, effective September 1, 2005.

Dollar Value of Revenue Change in Fiscal 2007

·               $132.9 million increase

Initial Impact in Fiscal 2007

·              68.5 percent to business, 31.5 percent to individuals

Major Industry Initial Impact in Fiscal 2007

·               Largest dollar increase:  $42.9 million increase to the manufacturing industry.

·               Largest percentage increase in overall tax liability:  0.9 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):

               $3.8 million increase, or 0.19 percent.

·               Middle income level (low $40,000s to low $50,000s income range):

               $7.5 million increase, or 0.18 percent.

·               Highest income level (low $140,000s and above):

               $15.7 million increase, or 0.11 percent.

Initial Tax Impact by Industry:

Senate 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. Senate Bill 3, As Introduced

Fiscal Year 2007

Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business

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. Senate Bill 3, As Introduced

Taxes Effective in Fiscal Year 2007

Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business

Summary of Tax Incidence Findings

Senate Bill 3, As Introduced would ultimately increase the tax burden of all households by $81.9 million for tax law changes effective in 2007. The difference between the initial increase in revenue of  $132.9 million in fiscal 2007 and the ultimate increase of $81.9 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. 

Table 4

Effective Tax Rate by Income Decile

Current Law vs. Senate Bill 3, As Introduced

Taxes Effective in Fiscal Year 2007

Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business

Summary of Effective Rate Findings