The Franchise Tax Conundrum

How a tax fix is not a tax raise

Rep. Zerwas: Franchise tax fix is
Rep. Zerwas: Franchise tax fix is "fair game."

How will Republicans raise taxes without raising taxes? That may sound like a riddle, but legislators are eying the state’s under0performing business franchise tax as a way to partially fill the coffers.

Big problem? How to not make it look like a tax increase.

During his opening day speech, Senate President Pro Tem Steve Ogden, R-Bryan, stuck to his "no new taxes" mantra. At the same time, he has raised the possibility of closing the franchise tax’s many loopholes and shifting the disproportionate burden away from small firms.

Everyone knows it's been an utter failure. Overhauled in 2006 to offset property tax cuts, the tax on business profits has consistently underperformed. Original forecasts had it bringing in $6.4 billion in the last financial year, but it only produced $3.9 billion – a $2.5 billion shortfall. Double that out for the biennium, and that's roughly 18% of the current state shortfall.

This new reform push will be good news for critics like Rep. John Zerwas, R-Simonton. Back in 2009, he authored House Bill 277, Sunsetting the tax in 2014 while instructing the comptroller to come up with a suitable replacement. His measure got no backing from the leadership, but this time he backs their plan.

At last week's launch of the new Child Protective Services Roundtable (read more about that in this week's issue) Zerwas said that he regarded tax increases as "a line in the sand" that the House Republicans were not prepared to cross. So we just had to ask him: Which side of that line is the franchise tax revamp?

Zerwas laid out what may be the GOP's approach to framing the debate. Since it’s not a new tax but just an old tax that left some people paying less than they expected, fixing it is "fair game," he said.

Of course, for all the anti-tax rhetoric, lawmakers of both parties will vote to create new tax-raising opportunities. It happens with every piece of legislation they approve to create new municipal utility districts. Each one has tax-raising powers, and dozens are approved each session. Doesn't look like the 82nd will be any different: Bills have already been filed to create new MUDs in Gunter, Harris, and Hunt counties, all with tax-raising powers.

However, they are easy electoral sells, because people feel they are getting value for money when they have water in their houses paid for by the MUD's bonds. So a lot of this debate will have less to do with a strict anti-tax agenda, and far more to do with how any changes are presented.

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KEYWORDS FOR THIS POST

82nd Legislature, State Budget, Business Margins Franchise Tax, John Zerwas, Steve Ogden

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