A Warning for Texas

The relatively low-tax and limited-regulation policies adopted by the state of Texas have provided it with many economic and commercial advantages over other states, but policymakers and elected officials must be careful not to overlook potential problems in those areas where the state has failed to restrain the size and scope of government. While not always readily observed, these faults have the potential to blossom into something much larger if left unattended— especially as the nation’s economic situation improves in the coming years and other states follow Texas’ lead in their efforts to attract investors and entrepreneurs.

One problem area for Texas is the revised franchise tax or “margin tax.” Mounting evidence suggests that the four-year-old margin tax, the state’s primary business tax, has harmed Texas’ economic competitiveness because of its costly and complicated nature, its imposition irrespective of an employer’s profitability and its contribution to an overall increase in the total business tax burden. Collectively, these factors are putting downward pressure on the state’s economy and weakening its economic competitiveness among the states.