LEGISLATIVE BUDGET BOARD
Austin, Texas
 
TAX/FEE EQUITY NOTE
 
82ND LEGISLATIVE REGULAR SESSION
 
April 26, 2011

TO:
Honorable Harvey Hilderbran, Chair, House Committee on Ways & Means
 
FROM:
John S O'Brien, Director, Legislative Budget Board
 
IN RE:
HB98 by Paxton (Relating to the E-Z computation and rate of the franchise tax.), As Introduced

Table 1
Summary of Elements: HB 98, As Introduced

This analysis is for taxes effective in fiscal 2013.

Revenue Changes

Dollar Value of Revenue Changes in Fiscal 2013

Initial Impact in Fiscal 2013

Major Industry Initial Impact in Fiscal 2013

Final Incidence of Changes Effective in Fiscal 2013

Initial Tax Impact by Industry

HB 98, 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. HB 98, As Introduced
Fiscal Year 2013
Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business

Gross State Product: Shares

Current Law Liability

Percent of Total

Proposed Law Liability

Percent of Total

Change in Liability

Percent of Total

Percent Change in Liability

[%]

[$ Million]

[%]

[$ Million]

[%]

[$ Million]

[%]

[%]

___Taxes Paid by Business:

Agriculture, Forestry, Fishing &

0.9

703.8

1.5

702.7

1.5

-1.1

0.3

-0.16

Mining

11.6

6,955.5

15.2

6,916.6

15.2

-38.9

9.9

-0.56

Utilities & Transportation

7.9

5,731.9

12.5

5,705.2

12.6

-26.7

6.8

-0.47

Construction

4.9

1,223.2

2.7

1,205.9

2.7

-17.3

4.4

-1.41

Manufacturing

14.2

6,154.2

13.4

6,086.4

13.4

-67.8

17.2

-1.10

Wholesale & Retail Trade

13.6

4,038.6

8.8

3,976.2

8.7

-62.4

15.9

-1.55

Information

4.7

2,882.7

6.3

2,858.0

6.3

-24.7

6.3

-0.86

Finance, Insurance & Real Estate

16.1

9,481.9

20.7

9,436.0

20.8

-45.9

11.7

-0.48

All Other Services

26.1

8,671.7

18.9

8,563.2

18.8

-108.5

27.6

-1.25

Total Taxes on Business:

100.0

45,843.5

100.0

45,450.2

100.0

-393.3

100.0

-0.86

___Taxes Paid by Households:

Residential Owner-Occupied

 

22,156.6

22,156.6

0.0

0.00

Personal Consumption

 

21,709.8

21,709.8

0.0

0.00

Total Taxes on Households:

 

43,866.4

43,866.4

0.0

0.00

 

___Total Taxes

 

89,709.9

89,316.6

-393.3

-0.44

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 Quintile
Current Law vs. HB 98, As Introduced
Taxes Effective in Fiscal Year 2013
Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business

Quintile

Quintile Income: Lower Bound

Quintile Income: Upper Bound

Current Law Tax

Percent of Total

Proposed Law Tax

Percent of Total

Change in Tax

Percent Change in Tax

[$]

[$]

[$ Million]

[%]

[$ Million]

[%]

[$ Million]

[%]

1

0

29,223

5,678.0

8.0

5,656.2

8.0

-21.8

-0.4

2

29,223

52,960

8,228.5

11.6

8,196.2

11.6

-32.3

-0.4

3

52,960

80,882

11,487.5

16.2

11,443.0

16.2

-44.5

-0.4

4

80,882

126,460

16,381.1

23.1

16,317.0

23.1

-64.1

-0.4

5

126,460

and above

29,074.0

41.0

28,964.0

41.0

-110.0

-0.4

Total:

70,849.1

100.0

70,576.4

100.0

-272.7

-0.4

Summary of Tax Incidence Findings

HB 98, As Introduced would ultimately reduce the taxes of all households by $272.7 million for tax law changes effective in 2013. The difference between the initial reduction in revenue of $393.3 million in fiscal 2013 and the ultimate reduction of $272.7 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 Quintile
Current Law vs. HB 98, As Introduced
Taxes Effective in Fiscal Year 2013
Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business

Quintile

Quintile Income: Lower Bound

Quintile Income: Upper Bound

Current Law Effective Rate

Proposed Law Effective Rate

Change in Effective Rate

Percent Change in Effective Rate

[$]

[$]

[%]

[%]

[%]

[%]

1

0

29,223

23.0

22.9

-0.1

-0.4

2

29,223

52,960

12.8

12.7

-0.1

-0.4

3

52,960

80,882

11.1

11.1

0.0

-0.4

4

80,882

126,460

9.8

9.8

0.0

-0.4

5

126,460

and above

6.0

6.0

0.0

-0.4

Total:

8.4

8.4

0.0

-0.4

 

Summary of Effective Rate Findings

HB 98, As Introduced would ultimately increase the effective rate for all households by 0.38 percent for taxes effective in fiscal year 2013. The effective tax rate is the aggregate amount of tax in a given income class divided by the aggregate amount of personal income in that class.



Source Agencies:
LBB Staff:
JOB, KK