Texas House and Senate Weigh Different Tax Cut Options

At the beginning of the month, we reported on the tax reduction plan passed by the Texas Senate that focuses on reducing the margin tax and property taxes. Today, the House passed a slightly larger tax cut overall; the difference is that it has a bigger reduction in the margin tax and cuts the sales tax rate instead of the property tax.

Here’s a rundown of the main points of each package:

The biggest take away is that House plan represents a deeper rate cut to the margin tax, and it does so in an across-the-board manner, which is good practice. I wrote earlier this month that the Senate’s generous exemption “might have the unintended consequence of dampening the support for future reform, as there will be fewer interested parties.”

Other beneficial inclusions in the House plan are a study on eliminating the margin tax and a provision that additional revenues in the future be put toward reductions in the margin tax rate.

It looks like the House and Senate will have to iron this out in some sort of compromise. The Texas Public Policy Foundation notes in a recent commentary that if the legislature were to stay focused on just the margin tax, it could eliminate the tax entirely with $4.7 billion, which is conveniently right in between the Senate and House proposals. That’s where the real growth is.

Check out our comprehensive review of the margin tax here.