Ten years ago the Texas Legislature expanded the state’s franchise tax in an attempt to contribute more state funding to K-12 public education while simultaneously offering property tax relief. In a new issue of The Takeaway, “Giving an ‘F’ to the Franchise Tax: The Texas Franchise Tax Fails to Fund,” Dr. Lori Taylor, an economist and director of the Mosbacher Institute, along with Erica Cottingham and Allison Shea, graduate research assistants and recent graduates of the Bush School of Government and Public Service, Texas A&M University, explain how the Texas franchise tax has failed.
Taylor, Cottingham, and Shea say the tax has failed to generate the predicted revenues every year since its expansion, in part because the tax allows businesses to choose how they will be taxed. The authors also explain that distortions and short comings are inherent in the updated tax and make the argument that abolishing the franchise tax and replacing it with a fairer and more efficient and equitable tax, such as a broader sales tax that includes consumer services, would raise the necessary state revenues without the inefficiencies and inequities of the franchise tax.
“Giving an ‘F’ to the Franchise Tax: The Texas Franchise Tax Fails to Fund” is a publication of the Mosbacher Institute for Trade, Economics, and Public Policy. The full text of the article can be found at http://bush.tamu.edu/mosbacher/takeaway/.