Tax Foundation Forum: Making Sense of Profit Shifting has reached its midpoint. In this halftime report, we provide a synopsis of the first nine of the 18 interviews in the series. This two-part review summarizes the key...
- The Tax Policy Blog
- Governor Perry’s Texas Marketing Faces Problems on the ...
Governor Perry’s Texas Marketing Faces Problems on the Margin
After raising the ire of California’s Governor Jerry Brown in California for his comments about the state’s tax and regulatory environment, Texas Governor Rick Perry’s next stop is New York. While there, he’ll continue to market Texas as an ideal destination for businesses seeking to escape high-tax and strict regulatory environments. Specifically, he will speak to gun manufacturers hit by new gun control regulations.
The Lone Star State’s appeal for companies is obvious. The lack of a personal or corporate income tax, in addition to a generally friendly regulatory environment, combine to create the ninth friendliest business tax climate in the U.S., according to our 2013 State Business Tax Climate Index. New York, meanwhile, has the seventh highest top individual income tax rate and a relatively high corporate tax rate (ringing in at 7.1 percent). It’s the worst-ranked state on our Index.
This fact has not been lost on New Yorkers, as Governor Cuomo has proposed creating “Tax-Free NY” areas for startups in select industries, a distortive practice we recently criticized. Although it will lower the tax liability for certain firms, it is poor tax policy. What it does do, however, is acknowledge that taxes matter to business.
The Texas tax code has problems of its own—namely, their pesky Margin Tax. It is excessively complex and non-neutral, and creates major compliance burdens on the firms that pay it. The tax combines the worst elements of different types of taxes, and has an idiosyncratic terminology as well as numerous exclusions, all of which have led to taxpayer confusion, lower-than-expected revenue, and major compliance costs. Recently, Governor Perry proposed that the margin tax be reformed—an idea we’ve discussed several times before (see here and here). Subsequently, the margin tax has been lowered, which is a good start. If Governor Perry wants to brand Texas as competitive and as a powerhouse business location, the Texas tax environment gives him a strong position from which to speak. The recent reform of the margin tax helps his argument, but full repeal would remove one of the state’s major stumbling blocks.
More on Texas here.
UPDATE: An earlier version of this post failed to note that Texas has already passed a reduction and partial reform of the margin tax. It has now been corrected.
Get Email Updates from the Tax Foundation
We will never sell or share your information with third parties.
Join the Tax Foundation's fight for sound tax policy Go
About the Tax Policy Blog
The Tax Policy Blog is the official blog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.