New Heartland Institute Report Urges Reform of Texas' Margins Tax

February 08, 2012

The Heartland Institute has produced a new Policy Brief titled “Texas Margins Tax: Principles for Reform” by Eli Lehrer, vice president for Washington, DC operations at Heartland, and Julie Drenner, Texas director of Heartland’s Center on Finance, Insurance, and Real Estate.

The report discusses Texas’s franchise tax--better known as the “margins tax”--describing how the tax works, outlining the promises made at the time of its creation, describing how those promises were broken, and providing policymakers with three guiding principles.

Lehrer and Drenner contend the margins tax does not work as advertised and has not achieved any of the goals its creators set out for it. They conclude that in the 2013 session, the Texas legislature should consider replacing the tax with some other means of raising revenue--or with nothing at all.

From the report:

“The legislature ... projected the margins tax would generate significant new revenue. By most accounts, the tax has not achieved any of these goals. It is not fair, broad-based, modern, understandable, or competitive, and it has produced less revenue than expected. Nor is it popular, according to business groups. More than 80 percent of those surveyed by one group of businesses said they would prefer to return to the previous system. The failure of the tax to keep its proponents’ promises helps explain why the legislature should consider eliminating it.”

“Texas’s Margins Tax: Principles for Reform,” can be found online here and at PolicyBot, The Heartland Institute’s online research database.

If you have any questions or comments on this report you can contact the authors directly: Eli Lehrer at elehrer@heartland.org or 202-615-0586, and Julie Drenner at jdrenner@heartland.org or 512-799-5706.

The Heartland Institute is a 28-year-old national nonprofit organization with offices in Chicago, Illinois; Washington, DC; Austin, Texas; Tallahassee, Florida; and Columbus, Ohio. Its mission is to discover, develop, and promote free-market solutions to social and economic problems. For more information, visit our Web site or call 312/377-4000.