House battles over future of franchise tax

Bill would phase out tax that supplies $8B each two-year budget cycle.

A plan to eliminate the state’s main business tax was being heatedly debated in the Texas House late Thursday, with supporters describing it as needed relief and critics calling the proposal shortsighted at a time when lawmakers are struggling to bridge a multibillion-dollar budget gap.

“Here we are talking about taking money we don’t have and giving another tax cut,” said state Rep. Donna Howard, D-Austin.

House Bill 28 would phase out the franchise tax, also called the margins tax, that supplies an estimated $8 billion to state coffers each two-year budget cycle.

The bill “puts the franchise tax on the correct path, and that is the path of going away,” said state Rep. Dennis Bonnen, R-Angleton, who sponsored it. “This is the appropriate thing to do to eliminate this bad tax, that was created largely to do property tax relief ” that hasn’t been fully realized.

But he was repeatedly quizzed by some House members during Thursday’s debate about how the lost revenue would be made up and state government would pay for essential services if the bill becomes law.

“This is the elimination of the third-largest source of state revenue currently,” said state Rep. Eric Johnson, D-Dallas, saying that there’s “no direct provision for its replacement” in the bill.

Bonnen agreed that HB 28 calls for “no (direct) replacement whatsoever,” but said the state “will have economic growth, job growth, that will go a long way toward replacing the revenue.”

The Senate already has approved its own version of a plan to phase out the franchise tax — Senate Bill 17, sponsored by state Sen. Jane Nelson, R-Flower Mound — and sent it to the House, which has not yet taken it up.

Based on current revenue esti-