AUSTIN, Texas – With the State Senate poised to consider major revisions to the state’s tax system next week, the chief economist of the Texas Public Policy Foundation urged them to reject bad economic policy.
“The Senate would do well to rely on sound economic principles and reduce reliance on hidden taxes levied against business,” said Byron Schlomach, Ph.D. “An underlying principle of economics is that businesses do not pay taxes, only people do. Any so-called business tax is really a tax on jobs, savings, and entrepreneurship.”
Schlomach said the current emphasis on tax-shifts reflects bad government decision-making in spending.
“The legislature is poised to pass a 14 percent increase in state general revenue spending, far outstripping inflation. Bad tax policy is driven by the desire to spend too much money,” he said. “It would be better for the legislature to live within our means, stop spending so much, and offer real tax relief.”
“Quite simply, the state cannot simultaneously increase spending and implement higher business taxes to buy-down the local school property tax by 40 to 50 cents over the biennium without hurting Texas’ business climate,” said Schlomach.
“A 25-cent property tax cut can be achieved without doing damage to the state’s economy by just slightly broadening the existing sales tax,” proposed Schlomach. “Because the franchise tax – whether current or revised – is ultimately a tax on jobs, it is much more regressive than any sales tax.”
The best tax system is one that relies more heavily on consumption taxes.
“Shifting Texas’ tax system toward more of a consumption base will ultimately create jobs and continue Texas on its impressive trend of attracting more business to Texas. The sales tax is also now federally tax-deductible, making it much more of an attractive alternative,” Schlomach concluded. “Consumption taxes are the proven, economically sound approach to taxation.”