The Texas Tax Reform Commission Plan
Relief – Reform – Fairness

The Texas Tax Reform Commission Plan will deliver record tax relief, real tax reform and greater tax fairness for homeowners and businesses. It provides a historic $6 billion property tax cut, and ensures that the state carries more of the school finance load – not local property taxpayers. It reforms the business franchise tax so more businesses pay for our children’s education while lowering the tax rate and maintaining a strong climate for continued job creation. And with a net tax cut of nearly $1.5 billion by the 2007 tax year, this plan will result in more families being able to afford to buy a home, more jobs that provide good healthcare plans and benefits, and more children excelling in schools that have the reliable revenue stream they need to succeed.

Tax Relief

  • This plan provides the largest property tax cut in Texas history with more than $6 billion in relief — a 33 percent reduction in school operations taxes for homeowners and employers.
  • This record property tax relief will make homeownership more affordable for millions of Texas families, and allow employers to spend more resources on jobs and growth.
  • Overall, this plan will provide taxpayers with a net tax cut of nearly $1.5 billion by the 2007 tax year.
  • This plan delivers tax relief to Texans in every income bracket – only those who voluntarily consume tobacco face the possibility of a higher net tax burden.

Tax Reform

  • This plan reforms the franchise tax to make it broader and fairer and the tax rate lower. It closes loopholes so that more businesses pay their share of education costs, while also lowering the primary franchise tax rate from 4.5% to 1%. Some who pay the franchise tax today will pay less, and many employers will pay the same or less in taxes when the property tax reduction is included.
  • It spreads the financial burden of paying for education across a broader cross section of the economy so that schools have a more reliable source of revenue. Like a diversified investment portfolio, the result will be that schools will have a more stable and predictable revenue stream, even if one segment of the economy experiences a downturn.
  • This plan will help Texas maintain a strong climate for job growth by doubling the small business exemption from $150,000 to $300,000 in total revenue and indexing it to inflation. Sole-proprietorships and general partnerships owned solely by natural persons will continue to be exempt from the tax.
  • It provides unprecedented incentives for employers to hire more Texans and invest in healthcare for workers and their families. In general, the more an employer spends on paychecks, healthcare and pensions, the less they will pay in taxes.

Tax Fairness

  • This plan delivers net tax relief to Texans in every income bracket when tobacco consumption is not considered. As a group, only Texans who choose to consume tobacco face the possibility of a higher net tax burden.
  • It ensures that a greater share of education costs are paid for by the state. The state will pick up an estimated 50% of the cost compared to an estimated 36% today.
  • This plan significantly reduces the amount of local property tax dollars that are recaptured and redirected from one school district to districts in other parts of the state.
  • It helps end the over-reliance on local property taxes to pay for our schools.

Q & A

Why not just spend the surplus now and take up comprehensive tax reform later?

Spending some of the surplus on tax relief is wise and responsible. But simply spending all of the surplus to meet the bare bones requirements of the Supreme Court ruling is not the best choice for a number of reasons:

  • It will lead to a multi-billion dollar deficit in the next regular session, which will most likely result in a tax hike.
  • It doesn’t provide a long-term solution to the school finance problem. A tax cut that is paid for using only surplus funds is temporary because there is no new mechanism to sustain the relief. When the tax relief runs out, the courts will likely step in again and Texas will be back at square one.
  • A surplus-only tax cut provides less relief to homeowners and employers for a shorter period of time. Exclusively using surplus funds will deliver a smaller tax cut for just one year. The Texas Tax Reform Commission Plan delivers a 33 percent tax cut that is paid for in the years ahead.

Why doesn’t this plan provide “new money” for education or authorize additional classroom reforms?

  • First, this plan increases the state share of education funding dramatically. Second, it gives schools a more reliable revenue stream for the future. Third, it provides school districts additional funding capacity than they have today. And fourth, it will result in continued economic growth and job creation, which means government will have more money to invest in priorities like education because of a growing tax base.
  • The Supreme Court has said that lawmakers must reform our property tax system or schools will shut down. That is why the governor has asked lawmakers to address this issue first.
  • There is no greater proponent of education reform than Gov. Rick Perry. He supports higher pay for teachers as well as merit-based pay, tougher classroom standards and more accountability for taxpayers. But he also recognizes that new classroom reforms will accomplish nothing if classrooms are closed because lawmakers failed to pass a school finance bill.