86th LegislatureIssuesState HouseState SenateStatewide NewsTaxes & SpendingProposition Protecting Against a State Income Tax Becomes Flashpoint Ahead of Tuesday Vote

The most hotly contested ballot initiative this fall is Proposition 4, which would raise the bar on implementation of a statewide income tax.
October 30, 2019
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Among the statewide constitutional amendments on the ballot this fall is one to solidify a prohibition on a statewide income tax: Proposition 4.

Currently, Texas has no state income tax and to implement one would require a majority vote in each legislative chamber to put it on the statewide ballot as a referendum — which would then have to pass by a simple majority.

If Proposition 4 passes, the threshold for implementing an income tax would be raised, requiring a constitutional amendment. To bear that out would require a two-thirds vote in support by each chamber and then a statewide simple majority referendum.

Those in support of the measure, including Lt. Governor Dan Patrick, do not want to take any chances and want additional protections to prevent a state income tax — especially as frequent commentary from pundits and media speculates over the prospect of Texas shifting toward Democrats and more progressive policies.

The Texan spoke with State Rep. Jeff Leach (R-Plano), the author of HJR 38 — the legislation that turned into Proposition 4.

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Leach said his intention behind bringing forward this legislation is that “It’s uniquely Texan for us to not have a state income tax.”

While a state income tax is not currently levied by the state government, Leach said the Texas Constitution does not strictly prohibit one. That realization led Leach to introduce this legislation.

Regarding the existing referendum requirement to implement an income tax, Leach added, “While that’s a good protection, it’s not enough. The bar should be higher, the protection should be stronger.”

“I think an income tax would be devastating to Texas. There is no question that individuals are leaving high-income tax states and coming to Texas,” he stated, pointing to what he and many others see as the Lone Star state’s competitive advantage to high-tax states like California.

Leach asserted that with Proposition 4, “We are sending a message to 28 million Texans and the rest of the country that we see what’s working.”

He also believes there is a desire among those opposed to Proposition 4 to implement a state income tax in the future.

“We are protecting the people of Texas from what the Democrats want to do down the road in implementing a state income tax,” Leach concluded.

Those in opposition view the measure as an unnecessary roadblock to what they see as a non-existent problem.

State Rep. Donna Howard (D-Austin) pointed to the 86th Legislature’s lack of consideration for implementing an income tax as a way to supplement the $11.5 billion spent on education, teachers’ salaries, and a buydown of property taxes. 

At one point, a sales tax increase was considered but it floundered out of the gate after polling showed just how unpopular it was.

Howard stated in a post on her website, “If an income tax dedicated to property tax reduction and school finance never came up for discussion then, it doesn’t appear there should be much concern about needing to change the safeguards already in place.”

Existing statute requires two-thirds of a hypothetical income tax’s net revenue to go toward buying down property taxes. The other third must go toward schools. This is known as the Bullock Amendment, which acts as a de facto appropriation in the case of a state income tax being implemented.

When asked why a requirement such as that was not included in the Proposition 4 ballot measure, Leach stated it is not relevant because, “There is no stream of potential funding we have to dictate constitutionally since we’re prohibiting the state income tax.” 

Howard asserted, “[T]he proposed amendment makes things worse by taking away the voters’ right to make this decision, and repealing the language that dedicates any income tax revenue to reducing property taxes and paying for schools.”

As discussion over Proposition 4 has increased in recent weeks, nearly every major Texas media outlet’s editorial board, with the exception of the Fort Worth Star-Telegram, has come out against the measure.

Editorial BoardFor/AgainstReasoning
Austin American-StatesmanAgainst“NO to a measure that would make it even harder to impose a state income tax, something that is already very unlikely. This measure’s flawed wording could allow courts to kill the business franchise tax, which raises billions of dollars for public education and other programs.”
The Austin ChronicleAgainst“This would prohibit the state from imposing an individual income tax, which it of course has never done, and which has been a third-rail issue for generations, and which would already require statewide voter approval thanks to previous GOP tub-thumping on this issue, despite it being a more efficient and equitable way to fund public services. This is pure base-scratching bullshit to "send a message," by its supporters' own admission.”
Houston ChronicleAgainst“In the end, though, it’s unclear why a change is needed. What’s more, some argue Prop 4’s wording of “individual income tax” is vague enough to draw a court challenge that could extend the ban to businesses, which could cost the state billions in revenue. Why take that risk? We say vote “Against” and leave dead enough alone.”
The Dallas Morning NewsAgainst“This newspaper opposes a state income tax. Its absence is one of the big reasons people move here and companies do business here. The state constitution already requires the approval of a majority of lawmakers and then a majority of voters to change that. But Proposition 4 would unnecessarily require a supermajority (two-thirds). There’s no need to clutter the constitution with unnecessary amendments like this.”
Fort Worth Star-TelegramFor“This amendment would boost the needed vote in each house of the Legislature to two-thirds. The bar to a major new tax should be high.”
San Antonio Express-NewsAgainst"It’s unnecessary and ties the hands of future Texans."
Waco Tribune-HeraldAgainst“This is political pandering of the worst sort, given it’s already nearly impossible to create a state income tax without voter approval. Plus, given legislative discussions about eliminating the much-hated property tax on daily school operations, approving this amendment could have the unintended consequence of eliminating viable options. Think twice, fellow taxpayer!”
Corpus Christie Caller-TimesAgainst“At best, this is an unnecessary feel-good measure whose main purpose is for its sponsors to be able to take political credit for it. At worst, it's a yoke on future generations of Texans whose challenges maybe different and better-served by an income tax. We Texans pay a huge price in property tax to be able to say we don't have an income tax.”
The EagleAgainst“The same stiff requirements to enact an income tax that have been in place since 1993 will remain in force. But, if Texas and Texans ever decide in the future to overhaul our antiquated tax system and put in an income tax, we shouldn’t make it harder to do so.”
Longview News-JournalAgainst“We oppose a state income tax but Texas already has an amendment prohibiting the Legislature from imposing one without a statewide referendum. This proposition has the feel of showboating with no practical purpose. Beyond that, we have no way of knowing how future Texans might want to fund government.”

Information gathered by Ballotpedia.

The Texas State Teachers Association (TSTA) lamented the removal of the Bullock requirements on dedicated revenue for a hypothetical income tax, saying, “Lawmakers could even choose to spend it on corporate tax breaks, rather than on education or any other critical state needs.”

Former Lt. Governor candidate Mike Collier — in an ode to the recently deceased Star Wars character, Admiral Ackbar — emphatically declared “It’s a trap.”

Collier claimed Proposition 4 would cause “corporate margin taxes to go down and property taxes to go up.”

The threat-to-franchise-tax claim is derived from the word “individual” in the proposition’s language.

It reads, “The constitutional amendment prohibiting the imposition of an individual income tax, including a tax on an individual’s share of partnership and unincorporated association income.”

Critics claim “individual” could be construed as to include businesses and thus jeopardize the franchise tax.

But this past session, HB 4542 amended the definition (Sec. 111.0023 of the Texas State Code) of “individual” to mean “natural person” — further specifying, “The term does not include a partnership, limited liability partnership, corporation, banking corporation, savings and loan association, limited liability company, business trust, professional association, business association, joint venture, joint stock company, holding company, or other legal entity.”

Leach emphasized that the franchise tax concern is “a non-issue” after HB 4542 was passed.

According to HJR 38’s official hearing witness list and committee hearing video, nobody testified against the bill (but a couple registered against it) during its House committee hearing — let alone voiced these concerns for public record. 

The concern over the franchise tax was brought up in the Senate’s committee hearing on May 17 when Sen. Kirk Watson (D-Austin) addressed it. But the new definition of “individual” likely mitigates the possibility of a legal challenge — a remedy which Watson himself suggested during a floor debate with Sen. Pat Fallon (R-Prosper).

Indeed, just as Howard states that Texas implementing an income tax is unlikely, a legal challenge to the franchise tax, especially with the new definition of “individual” codified, also seems unlikely.

In sum, Proposition 4 proponents are seeking the highest statutory bar — a constitutional amendment — to prevent the imposition of a state income tax on Texans.

Opponents believe the proposition unfairly takes away the decision-making power on taxation for future generations of Texans; warn the franchise tax could be legally challenged under a lax interpretation of the word “individual”; and worry that should an income tax be adopted down the road, the current guidelines for how revenue is spent (the Bullock Amendment) will become null and void.

Proposition 4 and nine other proposals are on the ballot right now.

Early voting has been underway and Election Day is this Tuesday, November 5. Voters will have the opportunity to either raise the bar for enacting a state income tax or keep the existing safeguards.

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Brad Johnson

Brad Johnson

Brad Johnson is an Ohio native who graduated from the University of Cincinnati in 2017. He is an avid sports fan who most enjoys watching his favorite teams continue their title drought throughout his cognizant lifetime. In his free time, you may find Brad watching and quoting Monty Python productions.