There’s a perception of millennials as quirky (and problematic) young adults who haven’t quite bought into the system that has built America into the most robust economy the world has ever seen.
But millennials are now in their 20s and 30s, and they make up the largest share of laborers in the workforce. Despite millennials’ much-publicized embrace of socialism, millennials also tend to view entrepreneurship quite favorably.
If we’re going to encourage the latter — because entrepreneurship is a cornerstone of capitalism and a fount of future jobs — we must stop marginalizing millennials and start fully recognizing and cheering on their contributions to our economy.
A good first step in Texas would be to end the business franchise tax, commonly called the “margins tax.” This tax is particularly burdensome (both in direct costs and compliance) to the young cohort we wish to encourage.
Texas does not have a personal income tax, but it does impose the margins tax, a hideous gross receipts-style tax that results in tax pyramiding. It is an overly complicated tax that the Tax Foundation has called the worst form of taxation. Many employers end up paying more to comply with this tax than the tax liability itself.
Bottom line: The margins tax is a poor way to collect revenue to fund limited government spending. And it hits millennials — who are just now reaching the age when they’re starting and growing their own small businesses.
Eliminating the margins tax would allow Texas entrepreneurs to choose how to spend more of their own money — and their time.
With more capital, companies could invest more money in jobs or research and development, or raise wages of productive employees. Because less would be spent on compliance with this byzantine tax, eliminating the margins tax would let entrepreneurs make an even greater contribution to the economy. And eliminating the margins tax would make Texas an even more competitive place to do business.
According to the Fraser Institute, Texas ranks as America’s third most economically free state. Florida and New Hampshire just beat out Texas in economic freedom as measured by government spending, taxation and labor market regulation. A major contributing factor that keeps Texas from being first is the margins tax, although property taxes are also a nuisance.
Eliminating the margins tax would encourage even more businesses to flock to the Lone Star State.
Instead of relying on tax incentives — outdated, unfair, socialist forms of government favoritism — to lure out-of-state businesses to Texas, the Legislature should simply eliminate the margins tax.
Bottom line: Millennials are OK. Sure, stereotypes persist, but data show the truth. Millennials are hard workers and they’re imaginative and innovative — exactly what every economy needs to thrive. This truth is understood by the 18 groups in the Conservative Texas Budget Coalition that support eliminating the margins tax.
So what do we replace the margins tax with? The answer is economic growth and government spending restraint.
Because there will be such an appetite to do business in Texas, the economic effects based on a dynamic economic model would be huge. The economy would likely gain at least $16 billion more in personal income and entrepreneurs could create, at a minimum, 130,000 net new private sector jobs within five years after elimination. Both would contribute to the side effect, for better or worse, of more taxes collected from other revenue sources.
But we haven’t even mentioned the main thing that the Texas Legislature must do to keep taxes low and keep a relatively competitive economic environment: Pass what could be the third straight so-called Conservative Texas Budget.
This budget wouldn’t increase by more than population growth and inflation, which is the best measure of the average taxpayer’s ability to pay. Achieving this along with cutting the property burden in nearly half over time would make Texas an economic juggernaut for millennials.
Texas has been a trailblazer in providing ample economic opportunity, but if we want it to stay competitive in the changing global economy, Texas must eliminate the burdensome margins tax and let millennial workers and entrepreneurs prosper.