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At the beginning of the 2015 legislative session, Republican lawmakers in Texas had the power and the surplus funds to cut taxes, divulgedThe Dallas Morning News. But “months of taunts, leaks, maneuvering, and angry protests—and above all, very poor communication—took a toll” on an agreed-upon cut to business taxes. By the end of May when the dust settled, lawmakers had pulled it together. According to The Texas Tribune, the House concurred with changes the Senate made to House Bill 32 (HB 32) by a 133 to 10 vote.

HB 32 enacted certain changes that are relevant for some business filers. Effective Jan. 1, 2016, and applicable to reports originally due on or after that date, companies with revenue up to $20 million will be eligible to take advantage of the EZ Computation tax reporting option. In addition, HB 32 reduces the tax rate under this computation from 0.575 percent to 0.331 percent.

HB 32 also decreases the franchise tax rate from one percent to 0.75 percent, and for retailers and wholesalers, decreases the franchise tax from 0.5 percent to 0.375 percent. The decrease becomes effective Jan. 1, 2016. Supporters claim that reduced compliance costs and business overhead will boost economic development and investment, while also sending a message that “Texas’ business climate is the best in the nation.” Supporters attribute this status to the fact that the bill frees up nearly $1.3 billion in fiscal year 2016, which some estimate could be deployed to create 129,000 jobs and $3.4 billion in annual investment within five years.

Despite the revenue losses, analysis of the bill theorizes that there would be “plenty” of revenue to enable Texas to meet its future obligations because the current budget surplus is “not unique.” Beyond this, the rainy day fund will reach $11 billion by the beginning of the next biennium.

Another benefit of HB 32 is that it accomplishes the goal of a low and broad tax while also reducing the government’s footprint and empowering Texans to make decisions with the forgone tax revenue that are best for the economy. The Tax Foundation endorses this low, broad tax principle as one that can contribute to substantial and stable revenue because it does not favor or punish certain economic decisions, industries, products, or activities over others.

On the other hand, the bill analysis cites opponents’ argue that the $2.56 billion costs should be used to fund basic services. Pre-kindergarten education is one target area, because such investments will ultimately provide the state with a more educated workforce that will make the economy more competitive.

Opponents also argue that transportation needs additional funding. Referring to Texas A&M Transportation Institute findings, the bill analysis recognized that “delays and fuel costs as a result of congestion cost the state $10.1 billion and more than 472 million hours of travel time.” What is more, “TRIP, a national transportation research group, found that an inadequate transportation system costs Texas more than $23 billion, which includes costs from congestion, air pollution, and public safety. In other words, billions of dollars are lost every year because Texas does not properly fund its transportation infrastructure.”

In the end, The Texas Tribune article reported a compromise of sorts: “[L]eaders in both chambers eventually agreed to take…a smaller cut in rates and a provision freeing a large number of businesses from paying any tax at all.”

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