By State Rep. Jim Murphy
Texas Insider Report: HOUSTON Texas Texas has a tax problem. Despite its business-friendly reputation our state imposes what is undoubtedly the worst business tax in the nation. The Texas franchise tax has been maligned by businesses both small and large by tax policy experts economists and even state policymakers.
Americans for Tax Reform a national tax reform advocacy group has argued that the franchise tax has significantly diminished the competitive advantage that Texas companies have over their out-of-state competitors."
After the tax was created in 2007 Texas dropped out of the top ten states in the Tax Foundations business climate index. In a competitive environment for business location and job creation we cannot afford to remain behind states like Florida and Indiana that are competing with us to provide the best environment for businesses to locate and expand.
For Texas to remain competitive a full phase out and repeal of the franchise tax sends a clear message that Texas is open for business and ready to accept new entrants to the business environment setting a national example for tax policy around the country. Further the best economic development plan is one based on broad simple and low taxes.
The franchise tax meets none of those

criteria and should be repealed suggests John Colyandro Executive Director for
the Texas Conservative Coalition Research Institute.
Republicans in the Texas Legislature understand this imperative. In the last legislative session which wrapped up in May 2015 we provided more than $3.8 billion worth of property tax and franchise tax cuts. Franchise tax reductions provided the bulk of this tax relief $2.6 billion as we set the state on the path to elimination of the tax by slashing the rates at which it is levied by 25. (We also cut the EZ file rate for smaller businesses by 42 and increased the number of businesses that qualify for the EZ rate.)
We also directed the Comptroller of Public Accounts to study the effects of abolishing the franchise tax on future economic growth and tax revenues.
Its worth noting that over the past year and even in the face of collapsing oil prices the effects of Texas fiscal shrewdness are being felt. Our state added 171000 private sector jobs over the past year and maintained a 4.4 unemployment rate which has been lower than the national average for 110 consecutive months. The Comptroller reports that last month state tax revenues were 2.1 higher than the same month a year ago.
The evidence is clear: lower tax rates beget economic growth and economic growth begets higher tax revenues
even when tax rates are lowered.
It is vital that we continue this path in the next legislative session which convenes in January 2017. Phasing out and eliminating the franchise tax would make Texas one of only four states without a corporate income tax or gross receipts-style business tax which would be a boon for investment job creation and economic growth.
The Beacon Hill Institute at Suffolk University (BHI) has modeled the dynamic fiscal and economic effects of both of these policy proposals. BHIs economic model shows 41500 net new jobs created across the entire Texas economy as well as $3.4 billion in net new investment in the state and $9.8 billion in new personal disposable income.

Furthermore it is clear that the franchise tax has failed to lower school district property taxes or keep the states school finance system out of court which were the two primary reasons behind its creation in 2007. School district property taxes rebounded above their 2007 levels as soon as 2008 and they now collect more than $25 billion per year: an all-time high.
Similarly
the Supreme Court of Texas is currently in the process of deciding the latest school finance lawsuit. One of the questions facing the Court is whether school district property taxes are an unconstitutional statewide property tax a conundrum which the franchise tax was intended to solve.
Although the franchise tax is the states primary business tax it generated only 4.3 percent of all state revenues in FY2015. Incrementally reducing or slowing the growth of state outlays by one or two percent for each of the next two or three biennia could see the tax phased out five or six years from now.
Repealing or phasing-out the franchise tax would continue to have substantial economic benefits for the entire Texas economy. We have already set Texas on a path toward elimination of the failed franchise tax and we must stay the course.
Jim Murphy represents West Houstons House District 133 in the Texas House of Representatives. During the 84th Legislative Session Murphy authored HB 193 to eliminate the franchise tax and joint-authored Chairman Dennis Bonnens HB 32 cutting the franchise tax by twenty-five percent.