AUSTIN—Today in the Texas State Capitol, a coalition of Texas Legislators, local business leaders, and policy leaders met to discuss economist Dr. Art Laffer’s proposal for Texas to considerably reduce the Margins Tax when Congress closes the online sales tax loophole. This loophole allows out-of-state and online retailers to have a competitive advantage over local businesses. Laffer’s study provides an outline for Texas to reduce the unpopular Margins Tax and restore basic free market principles with e-fairness.
The supplement shows how federal passage of e-fairness legislation would allow policymakers in Austin to reduce the Margins Tax by at least 60 percent, which would create an additional 139,000 jobs and increase gross state product by $73 billion over the next decade. Businesses of all size across Texas share the priority of reducing or eliminating the Margins Tax.
“Last session, the legislature worked hard to strengthen Texas’ economy by creating a positive business climate that encourages job creation and growth and investment,” said Rep. Cecil Bell, Jr. “By permanently exempting businesses with gross revenues of $1 million or less from paying the Margins Tax, the tax is simpler and fairer. However, I have said all along we should continue to look toward enduring solutions to the numerous problems that have plagued the tax since its existence. It is time we bring true sales tax equality to all Texas retailers.”
Existing policy gives online-only retailers preferential treatment with the tax code, as online-only retailers are subsidized due to a Supreme Court decision from the last century despite the fact that both retailers sell the same product. Congress is currently working to implement legislation that closes this loophole, restoring states’ rights and protecting small businesses. Legislation known as the Marketplace Fairness Act has already passed the U.S. Senate overwhelmingly. The legislation is cosponsored in the U.S. House of Representatives by Representatives Joe Barton, Mike Conaway and Ted Poe. And conservative leader and U.S. House Member Jason Chaffetz of Utah is working on improvements to the Senate-passed legislation that could pass the Congress this year.
The Margins Tax generated about $4.8 billion in revenue in 2013. Closing the online sales tax loophole could add at least $2.8 billion per year in revenue that could be immediately directed at reforms to reduce and ultimately eliminate the Margins Tax. The study notes that these estimates are conservative and static in nature, because online sales are expected to continue to grow. States like Texas that have implemented consumption-based taxes that are a low rate and flat, are put at a disadvantage because of the online sales tax loophole. Inaction by Congress threatens these pro-growth measures and puts in jeopardy future reforms.
To access a copy of the study: http://www.standwithmainstreet.com/getobject.aspx?file=Laffer-TX-Addendum-Study
To watch Dr. Laffer discuss how Texas can reduce or eliminate the Margins Tax: http://www.youtube.com/watch?v=FJQgIZFko1Y&feature=youtu.be