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Margin Tax Doing Damage to the State’s Competitive Edge

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Despite its reputation for low-taxes and limited regulations, the Texas margin tax, enacted by the Legislature in 2006, has undermined the state’s competitive edge, according to a new report released today by the Texas Public Policy Foundation.

As the report lays out in detail, the margin tax, the state’s primary business tax, has been a net negative for Texas businesses and their capacity for growth, stemming in part from the tax’s costly and complicated nature. This conclusion, reached with the help of various measures from the Tax Foundation, the American Legislative Exchange Council, and the State Business Tax Advisory Committee, should be a cause for concern for incoming legislators looking to protect Texas’ reputation as a business-friendly state.

Nowhere is Texas’ competitive decline more clearly evidenced than in the Tax Foundation’s State Business Tax Climate Index, an annual ranking of each state’s tax system. Prior to the implementation of this margin tax, Texas was ranked 17th in corporate tax ranking. Shockingly, in 2008, when the margin tax became effective, Texas’ competitive corporate ranking fell 25 positions to 42nd place, as pictured below. And today, it stands at a mediocre 37th place, an improvement more likely based on other state’s own failings rather than our state’s improving competitiveness.

 

                               Texas’ Corporate Tax Ranking in the State Business Tax Climate Index 

 

                       Source: The Texas Margin Tax & Its Impact on the State’s Economic Competitiveness