the fiscal view from texas96bda424cfcc34d9dd1a-0a7f10f87519dba22d2dbc6233a731e5.r41.cf2.… · the...

Texas Taxpayers and Research Association June 2016

www.ttara.org (512) 472-8838

The Fiscal View from Texas

The Governor’s Small Business Forum Washington County Chamber of Commerce

Dale Craymer

President Texas Taxpayers and Research Association

[email protected]

mailto:[email protected]


www.ttara.org (512) 472-8838

A (Quick) Review of the

2015 Legislative Session


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SURPLUS!!!

• Lawmakers were greeted with an extraordinary excess near $15 billion, thanks to years of healthy oil investment (remember, this was in January of 2015)


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SURPLUS!!!

• Ultimately lawmakers used: – About a third for tax relief – About a third in the budget (education,

dedicated funds, etc.) – About a third as a cash cushion


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Good Policy v. Good Politics • Texas’ reliance on property and sales taxes

makes Texas a high tax state for business—particularly capital/goods intensive businesses

• To improve Texas’ competitiveness and job growth, Texas should cut business taxes

• The most harmful tax to business investment is the property tax: – Texas has extremely high effective tax rates, and – a more expansive base than other states—including

business inventories and business personal property


www.ttara.org (512) 472-8838

State & Local Tax Burden: Taxes on Individuals vs. Personal Income

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U.S. Average: 5.9 %


www.ttara.org (512) 472-8838

State & Local Tax Burden: Taxes on Individuals vs. Personal Income

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U.S. Average: 5.9 %

Texas: 3.7%

Rank 48th


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State & Local Tax Burden: Taxes on Business vs. Economic Output

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U.S. Average: 4.8 %


www.ttara.org (512) 472-8838

State & Local Tax Burden: Taxes on Business vs. Economic Output

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U.S. Average: 4.8 %

Texas: 5.2 % Rank 18th


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Good Policy v. Good Politics • Texas homeowners (i.e. voters1) face growing

property taxes, blamed on rising appraisals (but in fact, caused by growth in local tax levies)

Notes: 68% of homeowners vote; 52 % of renters vote according to the Census Bureau’s Voting and Registration in the Election of November of 2010.


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The Final Package • HB 32 by Bonnen: Cuts franchise tax rates by 25

percent; extends the EZ alternative tax on gross receipts to taxpayers with $20 million in total revenue and cuts the rate to 0.331 percent (42 percent cut)

• SJR 1/SB 1 by Nelson: Raises the school homestead exemption to $25,000 (from the current $15,000)

• HB 7 by Darby: eliminates various occupational taxes No sales tax cut; no further erosion of the number of franchise taxpayers; no indexing that would shift future property taxes onto business


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House Bill 7: Repeals $200 Annual Tax on:

• Attorneys • Accountants • Property Tax Professionals • Investment Professionals • Surveyors • Engineers • Architects • Real Estate Brokers

• Interior Designers • Doctors • Veterinarians • Chiropractors • Dentists • Optometrists • Psychologists


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• Sulphur production – SB 757 by Perry • Crude oil regulatory tax of three-sixteenths a cent

per barrel – SB 757 by Perry • Five-cent per serving of alcoholic beverages on

planes and trains – HB 1905 by Springer • Three percent tax on bingo hall rental – HB 1905 • Liquefied gas – HB 1905 by Springer • Controlled substances – HB 1905 by Springer • 2% surtax on fireworks– SB 761 by Creighton • Inheritance – SB 752 by Bettencourt

Other Taxes Repealed


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Clouds on the

Economic Front


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World Oil Markets

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2013 2013 2013 2013 2014 2014 2014 2014 2015 2015 2015 2015

Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q4

World Oil Supply

World Oil Demand

Million barrels per day $ per barrel, Brent


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Increase in Oil Production 2010-2015 (mbd, % of total)

Saudi Arabia, 1.1, 14%

Other OPEC,

2.0, 25%

Rest of World, 0.1, 1%

US, 4.8, 60%


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World Oil Markets

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2013 2013 2013 2013 2014 2014 2014 2014 2015 2015 2015 2015

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World Oil Demand



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World Oil Markets

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World Oil Supply

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Economic Impact of a $1 Drop in the Price of a Barrel of Oil Factor Economic Effect Value of Oil Production $1.3 billion Value of Gas Production

$0.2 billion

Reduced Rig Count 8 rigs Reduced Number of Wells

176 wells

Investment Loss $1.1 billion Job Loss 1,000


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Oil Prices & Drilling Rigs

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Oil Price Per Barrel


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Oil Price Per Barrel Number of Rigs Running

Roughly an $80 billion loss in Texas investment

Roughly a $100 billion loss in oil and gas revenues


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The Impact on Jobs

• Over the past 15 months, Texas has lost 90,000 jobs in oil and gas extraction

• The “ripple” effects of those job losses totals more than 300,000 jobs


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Texas & US Job Growth Percent Change from Same Month in the Prior Year

-6%

-5%

-4%

-3%

-2%

-1%

0%

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5%

TexasUnited States


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A Look Ahead to 2017


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Key Budget Numbers All Funds Spending $209.4 bl. Increase over 2014-15 3.6 % General Revenue Spending $106.6 bl. Increase over 2014-15 12.0 %

General Revenue Surplus $4.1 bl. Rainy Day Fund Balance $10.4 bl.


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Key Fiscal Issues in 2017

• General Revenue budget surplus may be less because of oil/gas slump

• Slow economy with weak oil and gas prices could result in very modest revenue growth

• Rainy Day Fund may fall a bit short, but should still have close to $10 billion

• Supreme Court decision on Southwest Royalties tax case may impact available revenues


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State Fiscal Pressures in 2017 Dollars are in Billions

Highway Dedication $ 5.0 School Enrollment Growth ~ 2.4 Medicaid ~ 3.0 Employee Benefits ~ 1.0 Retired Teacher Health Insurance ~ 1.5 Child Protective Services ~ 0.5

Total, Selected Issues ~ $ 13.5


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What to Expect

• The legislature will, as usual, pass a fiscally-conservative budget

• Given the recent court ruling in the school finance case, a substantial funding increase for public schools is unlikely

• Given that money is tight, another round of tax cuts will be difficult


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The Texas Franchise Tax • Applies to all formally-registered Texas

businesses: – Corporations – Limited Liability Companies – Limited Partnerships – Professional Associations – Etc.

• Does not apply to non-registered businesses, such as sole proprietorships and general partnerships

• Based on taxable “margin,” not profits


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The Texas Franchise Tax

• Of the 1+ million formally registered businesses, only 117,000 actually owe any tax because of the $1 million small business exemption

• If funds are available for tax relief, expect the franchise tax to be a prime target


www.ttara.org (512) 472-8838

Thanks for Joining Us! If you have any questions or

comments, please feel free to contact TTARA staff.

Franchise Tax & State Budget: Dale Craymer [email protected]

Sales & Property Tax: John Kennedy [email protected]

School Finance: Sheryl Pace [email protected]

Property Tax: George Christian [email protected]

Communications: Ryan Ash [email protected]

Office Manager: Betty Wranischar [email protected]

Membership: Nancy Shields [email protected]

(512) 472-8838

the fiscal view from texas96bda424cfcc34d9dd1a-0a7f10f87519dba22d2dbc6233a731e5.r41.cf2.… · the...

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