Anti-tax Prop 4 puts state funding at risk

We get it. Taxes are unpopular, and the idea of a state income tax is particularly loathsome. Voters will understandably feel tempted on the Nov. 5 ballot to put a nail in the coffin of any such tax.

But hold onto your hammer: Proposition 4 carries flawed language that could let some corporations off the hook for the franchise taxes they currently pay, putting billions of dollars of state revenue at risk. We strongly urge voters to defeat Prop 4.

The laws on the books already make a state income tax a very distant possibility. It would take a majority of lawmakers to put the question to voters, and a majority of voters to approve it, according to the state constitution. Such support is unfathomable. Seven out of 10 Texans opposed creating a state income tax, a February poll by the University of Texas/Texas Tribune found.

Prop 4 would raise the bar even higher, requiring support from two-thirds of lawmakers to put a state income tax question to voters. Sounds harmless enough — until you read the Legislative Budget Board’s bold-lettered warning that this proposed amendment to the state constitution “could result in a significant loss of state franchise tax revenue, depending on potential future legal decisions.”

That’s because Prop 4 describes those exempt from an income tax as “individuals.” In some cases, courts have interpreted “individuals” to mean a group of people acting as a single entity, such as a corporation. If companies persuaded Texas courts to adopt such a reading of Prop 4, they could get a break from having to pay the franchise tax — the state's primary tax on businesses, estimated to generate $8 billion in the 2020-21 budget cycle.

Senate Democrats tried to cure the problem in May with an amendment changing “individuals” to “natural persons,” the proper legal term for human beings. But Senate Republicans defeated that amendment on a party-line vote, arguing the word change was unnecessary.

Perhaps their indifference to this snag is unsurprising: GOP state leaders have tried and failed for years to eliminate the franchise tax. But Texans cannot afford to be cavalier with a sizable revenue stream that supports public education, health and human services and other state services.

Voters should reject Prop 4. Texas is at no risk of adopting a state income tax anytime soon. Lawmakers who want to further strengthen an income tax prohibition in the Constitution should come back in the 2021 session with laser-focused language to do that without putting existing revenue streams at risk.

On the ballot

Proposition 4 would make it even harder to impose a state income tax, something that is already very unlikely.

We say

NO: 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.