Report of the Texas Tax Reform Commission

Tax Fairness – Property Tax Relief for Texans: Report of the Texas Tax Reform Commission

---

Tax Commission's Draft Tax Reform Bill

Tax Reform Analysis

---

Tax Commission's Draft Tax Relief Bill

Tax Relief Analysis

---

John Sharp's Letter to the Legislature

---

Synopsis of the issues and the plan

“This plan substantially improves the school finance system, provides a record $6 billion property tax cut for homeowners and employers, dramatically increases the state’s share of education funding, protects jobs, encourages investments in workers’ healthcare and pensions, and reforms the business franchise tax by broadening the base and closing loopholes. And it is a net tax cut of more than $1 billion starting in 2007.”

Key Benefits:

• It will make home ownership more affordable for millions of Texans by providing $6 billion in property tax relief for homeowners and employers by 2007.
• It will close loopholes and encompass a broader cross-section of the state economy, providing a fairer way to fund our children’s education.
• It encourages businesses to invest in jobs and employee benefits with deductions for hiring and investments in worker healthcare and pensions.
• It dramatically increases the state’s share of education funding.

Key Details of the School Finance Proposal:

Record Property Tax Relief:

• More than $6 billion in annual property tax relief will be delivered to homeowners and employers by Tax Year 2007, with nearly $2 billion in property tax relief in Tax Year 2006.
• It is a net tax cut of $1 billion in Tax Year 2006, and nearly $1.5 billion in Tax Year 2007.

Fairer Franchise Tax:

• The reformed franchise tax will be broader, fairer and assessed at a lower rate.
• A greater number of businesses will pay for the cost of educating our children.
• It provides a lower franchise tax rate of 1% (and .5% for certain low-margin employers, like retailers, wholesalers, and restaurants) than the current rate of 4.5%.
• Unlike previous proposals for franchise tax reform, we will provide employers incentives for hiring more workers, providing health insurance, investing in worker pensions, and investing in dependent healthcare.
• The reformed franchise tax captures businesses with liability protection, as was originally intended.
• Sole-proprietorships and general partnerships owned solely by natural persons are exempt from the tax.
• The small business exemption is doubled from $150K to $300K in total revenue, and indexed to inflation, so small businesses can prosper and grow.

More State Dollars for Education:

• The state will fund a larger share of our children’s education, picking up an estimated 50% of the cost of education by Fiscal Year 2008, reversing the trend of greater reliance on local property tax dollars and preventing the state share from dropping to 34% by Fiscal Year 2007.
• It reduces the amount of money recaptured and redirected to other school districts under Robin Hood.
• School districts will have increased capacity to raise education dollars.

The Bottom Line:

We can have both significant property tax relief and meaningful tax reform. We can broaden the base of the franchise tax and lower the rate while ensuring schools have additional funding capacity. We can protect jobs and encourage employers to invest in their workers’ healthcare and pensions. And we can do this while providing record property tax relief, making home ownership more affordable and giving Texans a net tax cut of nearly $1.5 billion by 2007.