Summary of Elements: SB 7, As Engrossed
This analysis is for taxes effective in fiscal year 2017.
Revenue Changes
- The bill would permanently lower the franchise tax rate from 1 percent to 0.85 percent for taxable entities not primarily engaged in retail or wholesale trade.
- The bill would permanently lower the franchise tax rate from 0.5 percent to 0.425 percent for taxable entities primarily engaged in retail or wholesale trade.
- The bill would permanently lower the franchise tax rate from 0.575 to 0.331 percent for entities electing to use the EZ computation to determine franchise tax liability. The bill would increase the maximum total revenue threshold at which entities are eligible to elect the EZ computation from $10 million to $20 million.
Dollar Value of Revenue Changes in Fiscal 2017
- $866.1 million business tax reduction
- $866.1 million net tax reduction
Initial Impact in Fiscal 2017
- A net decrease to business of $866.1 million
- A net change to households of $0.0 million
Major Industry Initial Impact in Fiscal 2017
- The largest dollar decrease: $258.2 million to the All Other Services industry
- The largest percentage decrease: 3.51 percent to the All Other Services industry
Initial Tax Impact by Industry
SB 7, As Engrossed was analyzed using the LBB's multi-tax model to determine the initial impact of relative to current state and local tax law. The results of the analysis are shown in Table 1 below.
Table 1
Comparison of Initial Tax Impact under
Current Law vs. SB 7, As Engrossed
Fiscal Year 2017
Comparisons Include Property Tax, Sales and Excise Taxes and Taxes on Business
| |
Current Law Liability |
Percent of Total |
Proposed Law Liability |
Percent of Total |
Change in Liability |
Percent of Total |
Percent Change in Liability |
| [$ Million] |
[%] |
[$ Million] |
[%] |
[$ Million] |
[%] |
[%] |
| Taxes Paid by Business: |
|
|
|
|
|
|
| Agriculture, Forestry, Fishing & |
1,124.0 |
2.0% |
1,121.41 |
2.0% |
-2.6 |
0.3% |
-0.23% |
| Mining |
10,212.1 |
18.0% |
10,136.59 |
18.2% |
-75.5 |
8.7% |
-0.74% |
| Utilities & Transportation |
6,752.3 |
11.9% |
6,699.05 |
12.0% |
-53.3 |
6.1% |
-0.79% |
| Construction |
2,893.3 |
5.1% |
2,863.73 |
5.1% |
-29.6 |
3.4% |
-1.02% |
| Manufacturing |
7,353.0 |
13.0% |
7,201.48 |
12.9% |
-151.6 |
17.5% |
-2.06% |
| Wholesale & Retail Trade |
5,138.6 |
9.1% |
5,000.08 |
9.0% |
-138.6 |
16.0% |
-2.70% |
| Information |
3,563.9 |
6.3% |
3,472.13 |
6.2% |
-91.8 |
10.6% |
-2.58% |
| Finance, Insurance & Real Estate |
12,297.5 |
21.7% |
12,232.59 |
21.9% |
-65.0 |
7.5% |
-0.53% |
| All Other Services |
7,365.9 |
13.0% |
7,107.73 |
12.7% |
-258.2 |
29.8% |
-3.51% |
| Total Taxes on Business: |
56,700.9 |
100.0% |
55,834.79 |
100.0% |
-866.072 |
100.0% |
-1.53% |
| Taxes Paid by Households: |
|
|
|
|
|
|
| Residential Owner-Occupied |
27,033.02 |
|
27,033.02 |
|
0 |
|
0 |
| Personal Consumption |
24,875.50 |
|
24,875.50 |
|
0 |
|
0 |
| Total Taxes on Households: |
51,908.52 |
|
51,908.52 |
|
0 |
|
0 |
| |
|
|
|
|
|
|
|
| Total Taxes |
108,609.38 |
|
107,743.31 |
|
-866.072 |
|
-0.80% |
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 2 and Table 3.
Summary of Tax Incidence Findings
SB 7, As Engrossed would ultimately reduce the taxes of all households by $604.2 million for tax law changes effective in 2017. The difference between the initial reduction in revenue of $866.1 million in fiscal 2017 and the ultimate reduction of $604.2 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.
Final Incidence of Changes Effective in Fiscal 2017
- Lowest income level (income range from $0 to $34,161):
A decrease of $48.5 million.
- Middle income level (income range from $61,955 to $94,319):
A decrease of $98.6 million.
- Highest income level (income range from $147,411 and above):
A decrease of $243.5 million.
Table 2
Tax Incidence by Income Quintile
Current Law vs. SB 7, As Engrossed
Taxes Effective in Fiscal Year 2017
Comparisons Include Property Tax, Sales and Excise Taxes, and Taxes on Business
| Quintile |
Quintile Income: Lower Bound |
Quintile Income: Upper Bound |
Current Law Tax |
Percent of Total |
Proposed Law Tax |
Percent of Total |
Change in Tax |
Percent of Reduction |
| [$] |
[$] |
[$ Million] |
[%] |
[$ Million] |
[%] |
[$ Million] |
[%] |
| 1 |
0 |
34,161 |
6,806.7 |
8.1% |
6,758.17 |
8.1% |
-48.5 |
5.6% |
| 2 |
34,161 |
61,955 |
9,645.6 |
11.5% |
9,574.00 |
11.4% |
-71.6 |
8.3% |
| 3 |
61,955 |
94,319 |
13,243.5 |
15.7% |
13,144.91 |
15.7% |
-98.6 |
11.4% |
| 4 |
94,319 |
147,411 |
19,203.8 |
22.8% |
19,061.77 |
22.8% |
-142.0 |
16.4% |
| 5 |
147,411 |
and above |
35,335.0 |
41.9% |
35,091.49 |
42.0% |
-243.5 |
28.1% |
| Total: |
|
|
84,234.5 |
|
83,630.34 |
|
-604.2 |
69.8% |
| |
|
|
|
|
|
|
|
| |
|
|
|
|
Total Residents: |
-604.2 |
69.8% |
| |
|
|
|
|
Total Exported: |
-261.9 |
30.2% |
Summary of Effective Rate Findings
SB 7, As Engrossed would ultimately decrease the effective rate for all households by 0.06 percent for taxes effective in fiscal year 2017. 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.
Table 3
Effective Tax Rate by Income Quintile
Current Law vs. SB 7, As Engrossed
Taxes Effective in Fiscal Year 2017
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 |
| [$] |
[$] |
[%] |
[%] |
[%] |
| 1 |
0 |
34,161 |
23.6% |
23.4% |
-0.17% |
| 2 |
34,161 |
61,955 |
12.8% |
12.7% |
-0.09% |
| 3 |
61,955 |
94,319 |
11.0% |
10.9% |
-0.08% |
| 4 |
94,319 |
147,411 |
9.9% |
9.9% |
-0.07% |
| 5 |
147,411 |
and above |
6.4% |
6.4% |
-0.04% |
| |
|
Total: |
8.7% |
8.6% |
-0.06% |