Analysis of Proposition 4: Texas Not Like 41 States With Income Tax

This is part of a series on the 10 propositions appearing on the November 2019 Texas Constitutional Amendment Election.

State income tax prohibition
Proposition 4 (HJR 38)
“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.”

Recommendation: For.

This amendment, if passed, would make for a strong statement that Texas is not like the 41 states with an income tax.

This proposition is asking voters whether or not to ban a state income tax. While it can be confusing to vote “for” to vote against a concept, that’s the simplest part. (Remember: “vote for four!”)

It gets complicated because there is a popular belief among Texans that the state constitution already prohibits the imposition and collection of an income tax. But according to Art. 8, Sec. 24, any “general law” passed by the Legislature to lay a state income tax is not effective until it is approved by at least a simple majority vote of the people (via a ballot proposition like this one). General laws only require a simple majority in both chambers of the Legislature.

A resolution to amend the state constitution, however, requires at least a two-thirds majority in each chamber. By placing the levying of an income tax under a constitutional amendment requirement, the hurdle is significantly raised.

It gets a little more complicated: The amendment specifically refers to net incomes of individuals, partnership shares, and unincorporated association income. Because of the way the amendment is worded, there has been some buzz as to whether the mention of “individuals” — rather than the preferred statutory term “natural persons” — could be applied to businesses considered as individuals under existing law. The fear is that the amendment could eliminate the authority of the state to impose a franchise tax on certain businesses. This might prove to be an added perk, but we do not believe that the courts would agree that was the intention of the law.

See our previous coverage here: Texas State Income Tax Ballot Confusion: Vote For To Vote Against? (Answer: Yes)

Below is the analysis from the Texas Legislative Council containing pros and cons.

Comments by Supporters

• Many voters believe that the Texas Constitution already prohibits a state personal income
tax, but the constitution only imposes certain restrictions, including voter approval, on
any potential personal income tax. H.J.R. 38 would provide a clear prohibition.

• The absence of a state personal income tax is part of the business-friendly climate that
attracts people and businesses to Texas and is a contributing factor to the state’s recent
economic success.

• The experience of other states suggests that a personal income tax tends to hinder
economic development, wage growth, and prosperity while creating a large
governmental bureaucracy to administer the tax.

• H.J.R. 38 would make it more difficult to impose a state personal income tax in the future
because a two-thirds vote of each chamber of the legislature is required to amend the
constitution.

Comments by Opponents

• Constitutionally prohibiting a state personal income tax would unnecessarily block a
future revenue option that is less regressive than current taxes. Revenue from a personal
income tax could be used to help alleviate the state’s property tax and school finance
problems and could reduce the tax burden on Texas businesses.

• The existing constitutional restrictions, including voter approval, already make it difficult
to impose a personal income tax. Those restrictions combined with the standard
legislative process provide an adequate safeguard against a potential tax that is not
supported by Texas voters.

• The proposed amendment’s reference to a tax on “individuals” rather than on “natural
persons” could have unintended consequences by being interpreted to limit the
application of the state franchise tax to certain business entities.

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