May 24, 2005
The Honorable Warren D. Chisum
State Representative, District 88
Texas House of Representatives
Capitol Building, Room GW.15
Austin, Texas 78701
Dear Chairman Chisum:
As Texas Comptroller and in fulfilling my constitutional and statutory responsibilities, I never play games. The numbers are what the numbers are. You seem to be under the impression that intimidation and threats will somehow make the numbers different. That is not the case.
In answer to your statement yesterday that I was shortchanging you $1 billion, here are the facts. In an analysis prepared by my office for Senator Brimer last August, I provided accurate, straight up numbers. That same accuracy was provided to you in the analysis of the latest House proposal of the reformed franchise tax (RFT).
The Brimer plan that I analyzed in conceptual form at his request in August 2004 would have raised $5.4 billion a year in the upcoming biennium. When Senator Brimer provided me with an actual draft bill incorporating his proposal, it produced about $4.4 billion a year during 2006-07 because of changes made in the details of the bill, primarily a revised definition of compensation in the earned surplus base, the exemption of passive entities and the exclusion of sole proprietors from taxation. The current House reformed franchise tax would average an estimated $2.7 billion a year in 2006-07.
The key differences between the Brimer proposal and the House RFT proposal are as follows:
- Earned Surplus Base: The tax base in the Brimer proposal includes 100 percent of compensation less a deduction of $30,000 per employee in the earned surplus base. The House RFT uses the current franchise earned surplus base. This makes a massive difference in the size of the base being taxed. This allows the rate to be significantly lower--2.5 percent in Brimer versus 4.5 percent in the House RFT.
- The Payroll Tax Base: The Brimer proposal provides for a payroll tax of 1.75 percent and no more than $1,500 per employee per year. The House proposal is 1.15 percent with no limit on tax paid per employee. The House rate is 34 percent lower than the Senate version.
- The Brimer proposal requires taxpayers to pay the higher of their chosen tax or a 0.25 percent gross receipts minimum tax. The House proposal allows taxpayers to pay the lower of the two bases but not less than 50 percent of the higher. Chairman Chisum, the difference between the two proposals mathematically is that the Brimer plan contains a large compensation component in the revised RFT and while it allows the taxpayer to choose between two tax bases, one must pay the higher of the chosen tax or a significant gross receipts tax.
I have and will continue to provide the most straight up, accurate estimates. You have publicly stated that you are playing Russian Roulette with the Comptroller. I do not play Russian Roulette nor any games with hard-earned taxpayer dollars.
Carole Keeton Strayhorn