State of the Week: TEXAS…Small Business Friendly, and Getting Friendlier

By at 15 May, 2017, 9:03 am


by Raymond J. Keating-

Small Business Policy Index 2017: Texas ranked second best among the 50 states.

SBE Council’s “Small Business Policy Index 2017” ranks the 50 states according to 55 different policy measures, including a wide array of tax, regulatory and government spending and performance measurements.

Small Business Tax Index 2016: Texas ranked third best among the 50 states.

SBE Council’s “Small Business Tax Index 2016” ranks the states according to 25 different tax measures. Among the taxes included are income, capital gains, property, death, unemployment, and various consumption-based taxes, including state gas and diesel levies.

Lawmakers Looking to Make Small-Business-Friendly Texas Even Friendlier

Texas possesses a strong pro-entrepreneurship, pro-small-business policy environment, as illustrated by its ranking of second best on the “Small Business Policy Index 2017” and third best on the “Small Business Tax Index 2016.”

Among key positives for Texas is the fact that the state imposes no personal, individual capital gains, corporate income, corporate capital gains and death taxes.

And now policy climate for small business could get even better, as state lawmakers consider ending the state’s franchise tax, which essentially is an ugly and complicated gross receipts tax.

The Texas House recently passed a measure (House Bill 28) that would phase out the gross receipts tax. As State Rep. J.M. Lozano explained in a recent op-ed:

“House Bill 28 will put the state franchise tax on a steady track toward a complete repeal through our state surplus money. This legislation will have the state use excess state revenues to cut the rate of the franchise tax. This will provide a proportionate tax relief for all Texas businesses paying the tax. The bill will require the Texas Comptroller of Public Accounts to determine the ending balance of general revenue related funds from the preceding biennium in each odd-numbered year. The Comptroller will then take that number, calculate the needed rate, and then subtract that rate from the existing rate to determine the new lower rate.”

The tax could be repealed by 2024. Of course, such a long and uncertain phase out period will limit the economic benefits of zeroing out this complex tax. But the benefits for the Texas economy will be quite clear once the tax is, in fact, eliminated.

Economist Vance Ginn with the Texas Public Policy Foundation has highlighted the economic benefits of killing this tax, noting that “there is a dynamic effect as elimination of the margins tax could contribute to as much as $16 billion in new personal income and about 130,000 new private sector jobs over five years above the status quo when considering the reduction in tax payments and compliance costs. If you just consider the reduction in tax payments, even the most conservative estimates indicate $5 billion in new personal income and almost 42,000 new private sector jobs five years after elimination.”

As Rep. Lozano noted: “House Bill 28 will eliminate the Texas franchise tax once and for all, allowing Texas to continue being the best state in the country in which to do business.”

Indeed, Texas continues to serve as a positive policy example for other states.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP: The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.



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