LEGISLATIVE BUDGET BOARD
Austin, Texas
 
TAX/FEE EQUITY NOTE
 
84TH LEGISLATIVE REGULAR SESSION
 
April 21, 2015

TO:
Honorable Dennis Bonnen, Chair, House Committee on Ways & Means
 
FROM:
Ursula Parks, Director, Legislative Budget Board
 
IN RE:
HB31 by Bonnen, Dennis (relating to decreasing the state sales and use tax rate.), Committee Report 1st House, Substituted

Summary of Elements: HB 31, Committee Report 1st House, Substituted

(CSHB 31)

This analysis is for taxes effective in fiscal year 2017.

Revenue Changes

Dollar Value of Revenue Changes in Fiscal 2017

Initial Impact in Fiscal 2017

Major Industry Initial Impact in Fiscal 2017

Initial Tax Impact by Industry

CSHB 31 was analyzed using the LBB's multi-tax model to determine the initial impact of the proposed changes 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. CSHB 31
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%           1,121.07 2.0% -2.9 0.5% -0.26%
Mining            10,212.1 18.0%         10,125.38 18.0% -86.7 14.4% -0.85%
Utilities & Transportation              6,752.3 11.9%           6,671.45 11.9% -80.9 13.4% -1.20%
Construction              2,893.3 5.1%           2,805.14 5.0% -88.2 14.6% -3.05%
Manufacturing              7,353.0 13.0%           7,286.90 13.0% -66.2 11.0% -0.90%
Wholesale & Retail Trade              5,138.6 9.1%           5,063.67 9.0% -75.0 12.4% -1.46%
Information              3,563.9 6.3%           3,525.72 6.3% -38.2 6.3% -1.07%
Finance, Insurance & Real Estate           12,297.5 21.7%         12,253.44 21.8% -44.1 7.3% -0.36%
All Other Services              7,365.9 13.0%           7,245.39 12.9% -120.5 20.0% -1.64%
Total Taxes on Business:            56,700.9 100.0%         56,098.16 100.0% -602.700 100.0% -1.06%
Taxes Paid by Households:              
Residential Owner-Occupied  27,033.02           27,033.02   0   0.00%
Personal Consumption  24,875.50           24,008.20   -867.3   -3.49%
Total Taxes on Households:  51,908.52           51,041.22   -867.3   -1.67%
               
Total Taxes  108,609.38         107,139.38   -1,470.000   -1.35%

 

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

CSHB 31 would ultimately reduce the taxes of all households by $1,159.2 million, or 1.38 percent, for tax law changes effective in 2017. The difference between the initial reduction in revenue of $1,470.0 million in fiscal 2017 and the ultimate reduction of $1,159.2 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

Table 2

Tax Incidence by Income Quintile
Current Law vs. CSHB 31
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%      6,706.67 8.1% -100.0 6.8%
2 34,161 61,955           9,645.6 11.5%      9,499.30 11.4% -146.3 10.0%
3 61,955 94,319         13,243.5 15.7%    13,041.91 15.7% -201.6 13.7%
4 94,319 147,411         19,203.8 22.8%    18,928.27 22.8% -275.5 18.7%
5 147,411 and above         35,335.0 41.9%    34,899.19 42.0% -435.8 29.6%
Total:             84,234.5      83,075.34   -1,159.2 78.9%
               
           Total Residents:  -1,159.2 78.9%
          Total Exported: -310.8 21.1%
 

 

Summary of Effective Rate Findings

CSHB 31 would ultimately decrease the effective rate for all households by 0.12 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. CSHB 31
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% 23.2% -0.35%
2 34,161 61,955 12.8% 12.6% -0.19%
3 61,955 94,319 11.0% 10.8% -0.17%
4 94,319 147,411 9.9% 9.8% -0.14%
5 147,411 and above 6.4% 6.4% -0.08%
    Total: 8.7% 8.6% -0.12%



Source Agencies:
LBB Staff:
UP, KK, SD