Table 1
Summary of Elements: HB 701, As Introduced

This analysis is for taxes effective in fiscal 2013.

Revenue Changes

• The bill would raise the threshold level of total revenue at which a taxable entity would owe no franchise tax from $600,000 to $1,000,000 in fiscal year 2012 and 2013.

Dollar Value of Revenue Changes in Fiscal 2013

• $76.0 million business tax reduction
• $76.0 million net tax reduction

Initial Impact in Fiscal 2013

• A net decrease to business of $76.0 million
• A net increase to households of $0.0 million

Major Industry Initial Impact in Fiscal 2013

• The largest dollar decrease: $20.9 to the All Other Services industry
• The largest percentage decrease: 0.3 percent to the Wholesale & Retail Trade industry

Final Incidence of Changes Effective in Fiscal 2013

• Lowest income level (income range from $0 to $29,223):
  A decrease of $4.2 million, or 1.7 percent.
• Middle income level (income range from $52,960 to $80,882):
  A decrease of $8.5 million, or 1.7 percent.
• Highest income level (income range from $126,460 and above):
  A decrease of $21.1 million, or 1.6 percent.

Initial Tax Impact by Industry

HB 701, 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 701, As Introduced
Fiscal Year 2013
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 degrees 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.

Table 3

Tax Incidence by Income Quintile
Current Law vs. HB 701, As Introduced
Taxes Effective in Fiscal Year 2013
Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business

Summary of Tax Incidence Findings

HB 701, As Introduced would ultimately reduce the taxes of all households by $52.4 million for tax law changes effective in 2013. The difference between the initial reduction in revenue of $76.0 million in fiscal 2013 and the ultimate reduction of $52.4 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.

Summary of Effective Rate Findings

HB 701, As Introduced would have no significant impact on the effective rate for all households 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.