I recently did a blog post on business taxes going up in Texas. And a follow up post onÂ entrepreneurshipÂ and suicide. And as it so happens one of the five people who read this blog brought it up after a tennis match the other day. The conversation went something like this:
CitizenX: So I read your blog post on Rick Perry’s tax increases the other day.
Me: Yup. It’s easy to find being in the top five listings if you google “rick perry tax.” But yes, please go ahead.
CitizenX: (Internally CitizenXÂ is thinking “dude, you are such a nerd” but he doesn’t say that. Instead he says:) I haven’t checked that Ed. But what I was going to say is that Rick Perry didn’t have a choice. He had to work with what he had because you can’t have an income tax in Texas.
Me: Well, you can have an income tax. You just have to get it passed as a constitutional amendment. But you CAN have an income tax.
CitizenX: Yes, but that would never pass.
Me: Not if everyone screams that a fair tax is the end of the world. But wouldn’t it be better to have a referendum and pass a fair income tax rather thanÂ double tax small businesses arbitrarily. We experienced a 500% tax increase for our business (we went from $800/yr to $5,000/yr since the change my CPA tells me.) and then go on TV and say you are “reducing business taxes“Â referring to the tax law he passed, right?
CitizenX: Â The Margin Tax is flawed, but it was his only option to work with it.
Me: But it isn’t a “Margin” tax. Or a “Franchise” tax. It is an the expanding Texas Income Tax with bureaucrats defining your margin.
CitizenX: What do you mean?
Me: Well the tax was originally a two page document that left everything vague. Remember how the law firms said they were “retailers” and that partner salaries were “cost of goods sold?” Well that has had five years to work through the courts and the taxing authorities. And they have issued a bunch of rules about what is and what is not a retail business and what is or is not a valid retail store. Â And what is and what is not an expense. So the legislature and our Republican Governor passed a vague law. And now our unelected bureaucrats are defining what it is an expense and what is profit. What do these people know about business? And that costs jobs. I mean, I can afford the tax, it is the principle of the thing that gets me.
CitizenX: But the Governor didn’t have a choice!
Me: What do you mean?
CitizenX: Well if he pushed for an income tax, it might not go through, and even if a Texas income tax did push through, he wouldn’t get reelected.
CitizenX: He is a politician. He wants to be reelected.
Me: But he had a choice. Are you saying Rick Perry is putting his personal interests, as a servant of the great State of Texas, above the best interests of the great State of Texas? Cause that seems wrong to me. As an Aggie, that is just wrong.
Me: As I see it, Rick Perry has the option of passing a fair tax. That tax would be good for Texas and be fair to businesses. It would eliminate uncertainty. It would prevent taxing authorities from influencing how businesses form and where they locate. And it would help balance the budget and prevent our education system from going down further. That would be in the best interest of Texas.
The ONLY cost I hear is “the governor might not get reelected.” The ONLY cost of doing the right thing is risking reelection. I have voted for him in several elections. I would vote for someone who passionately and honestly fought for Texas. I’m not seeing that.
CitizenX: (shakes head). (apparently I can be black and white on some issues)
Me: I miss our statesmen and our last two-term Independent President George Washington who put the country before themselves. Remember George Bush 41? He promised no new taxes. He became President. Our President studied the facts. He did the best thing for the country and did raise some taxes and enacted spending cuts. Yes, he did lose reelection. But the budget did balance under Clinton based on what 41 did. And I respect the hell out of George Bush because he is a true patriot who put the country above a speech and lobbyists and pollsters.
CitizenX: You’re getting kind of worked up.
Me: Sorry. Frustration does that. I’ll shut up now. … Actually I’ll go back to work. Create value for our clients. Pay our employees. And generate payroll and income tax for Texas because that is what I do.
As I said when I blogged it the first time “It is not tax that breaks a business manâ€™s soul. It is inequities.”
This old news clip explains the impact probably better than I can. It is a bit dated, but perhaps the video will help.