A Texas think tank has renewed its call for lawmakers to phase out the inefficient and cumbersome business margins tax. The Texas Public Policy Foundation is right; and as we elect all Texas House members and much of the Texas Senate this year, candidates should clearly state their positions on the matter.

“Businesses don’t pay taxes; people do in the form of higher prices, lower wages and fewer jobs available,” wrote the TPPF’s Talmadge Heflin. “Given that taxes exist to fund essential government services, conservative budgets must be funded with the least burdensome taxes. No matter how you evaluate Texas’ business franchise tax, commonly called the margin tax, it fails this test and should be eliminated.”

Lawmakers in the last legislative session cut the tax and that was a good start.

“[Their] actions led to a generous 25 percent reduction in the margin tax that began on Jan. 1 for a total cut of about $2.6 billion,” Heflin noted. “This not only has the effect of reducing the size of government, but employers will also have more money to invest in Texas’ future to boost the slowing job market.”

But it’s not enough. As a recent TPPF study pointed out, “This tax is bad public policy and must be eliminated for Texans to reach their full potential.”

There are many, many problems with the margins tax.

“Since the margin tax’s inception in January 2008, the Texas Comptroller’s Office has had difficulty accurately estimating its revenue as noted by the cumulative $2.8 billion less in actual collections than estimated,” Heflin wrote. “In addition, the Comptroller’s analysis shows that it disproportionately burdens lower income Texans as they pay more of it as a percent of their total household income than other income groups.”

Business owners are also burdened by the complicated and cumbersome tax.

“The compliance cost can often be more than their tax bill,” Heflin pointed out. “Their first $1 million in revenue is exempt, which benefits some small businesses, but many surpass that quickly. They then must determine their tax base from multiple taxable margins dependent on their gross revenue and then multiply that base by different rates to get their tax owed.”

The margins tax crack-up has been coming for some time. In 2008, state Sen. Kevin Eltife, R-Tyler, noted he opposed it from the start.

“The plan was to give homeowners much-needed property tax relief,” he said. “It was touted as being a (property) tax cut of one-third. But I don’t know anyone who has seen the relief that was promised. … I think we’re heading back to where we started. I think people’s bills will be just as high before, but with an additional business tax. We haven’t truly shifted the burden.”

Time has proven Eltife correct. What can be done now? Heflin said lawmakers should eliminate the tax, over time.

“Studies show that eliminating this tax would boost job creation and economic prosperity,” he said. “It would also increase the state’s competitiveness.”

It’s time to end the business margins tax – not mend it.