Texas Legislature Passes Significant New Tax Relief and Continues to Lead on Pro-Growth Reforms

As the Texas Legislature finished its 2015 session, lawmakers from the Lone Star State have once again approved a tax relief measure that will only add to the Texas reputation as a state friendly to business and poised for economic growth. Lawmakers from the state House and Senate considered various options for tax relief packages lawmakers would adopt this year, and the final product is a nearly $3.8 billion tax reduction over the next two years.

The Texas economy has been booming for years; in fact, the state ranks 11th for economic outlook in the 2015 edition of Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index. From 2003 to 2013, Texas grew employment by 20.5 percent, second only to North Dakota. In that time period, Texas’ gross state product grew by 81.7 percent, far above the national average. Often, when a state experiences dramatic population growth – as Texas has – pressure mounts to increase taxes. The combination of fiscal responsibility and careful budgeting has allowed Texas to remain one of only nine states that does not levy a personal income tax.

The state also has no corporate income tax, but rather taxes businesses under a franchise tax system, commonly referred to as the “margins tax.” The margins tax is a type of modified gross receipts tax, under which a company pays a tax on their gross revenues for the year rather than on profits. This type of tax structure is one of the most damaging for economic growth (as discussed previously at American Legislator) and has been one of the very few negative spots on Texas’ otherwise pro-growth tax and fiscal policy climate.

Fortunately, the compromise tax relief measure that the legislature passed recently addresses the margins tax, reducing the tax rate by 25 percent across the board. This tax reduction means state businesses will retain $2.6 billion over the next two years to save, invest and grow. The tax relief package also includes a provision to raise the homestead exemption from its current $15,000 to $25,000, providing property tax relief for Texans. Finally, the tax relief package also includes a provision to require a supermajority of local governing board officials, such as cities and counties, to raise property taxes.

Overall, Texas is the model for pro-growth tax and fiscal policies that other states should emulate. This session’s tax relief package only further cements Texas as one of the national leaders for future economic growth.

“We are very proud that we were able to cut the tax burden for job creators across Texas this session while growing spending at a responsible rate and ensuring the rainy day fund is well maintained,” said Texas State Representative and ALEC National Chairman Representative Phil King. “We hope these changes will continue to move Texas up in future Rich States, Poor States rankings.”

Texas is reaping the rewards of economic growth that result from sound fiscal policies of thoughtful regulations and low taxes; the rest of the country would do well to learn from this example.

In Depth: Cronyism

Cronyism in tax policy stifles innovation, hinders competition and introduces a deep temptation for corruption. The 2014 ALEC Center for State Fiscal Reform study, The Unseen Costs of Tax Cronyism: Favoritism and Foregone Growth, found that in the most recent year in which states published their respective tax expenditure…

+ Cronyism In Depth