How hard should creating a Texas income tax be? Voters will decide with Proposition 4

Creating a personal income tax in Texas isn't easy. But supporters of a proposition on the Nov. 5 constitutional amendment ballot want to make the prospect of such a tax even more remote.

Currently, the Texas Constitution requires voters to approve an individual income tax in a statewide referendum, which legislators can ask for with a simple majority in the House and Senate. Proposition 4 would raise the bar, amending the constitution so that any income tax resolution would need two-thirds support in both legislative chambers before the matter goes to voters, who would ultimately decide.

State. Sen. Pat Fallon, R-Prosper, said lawmakers who supported the measure wanted to provide both residents and outsiders interested in doing business in Texas assurance that the state is committed to a business-friendly environment.

Most agree that the proposition is likely to pass; Fallon said he anticipates 90% of voters to approve.

Still, some lawmakers and tax experts expressed their opposition to the measure.

State Sen. Nathan Johnson, D-Dallas, said he will be voting against the proposition, calling it a "waste of time" and "a political stunt." He opposes an income tax but said the Texas economy could change in the future, necessitating an alteration to the state tax structure.

"We’re handcuffing future generations," Johnson said.

Dick Lavine, a senior fiscal analyst at the left-leaning Center for Public Policy Priorities, said the issue is already covered in the state constitution.

“If you’re looking for voter control over a state income tax, you’ve already got it," he said, referring to the 1993 constitutional amendment that required statewide voter approval to impose an income tax. Named after former Comptroller Bob Bullock, the Bullock Amendment also requires that revenues from any income tax be used to pay down property taxes and fund public education.

Controversy surrounded the measure as it moved through the Legislature this spring. Senate Democrats raised objections about the measure's language, contending that using the term "individual" instead of "natural persons" — the phrase used throughout the state constitution's tax section — could precipitate legal challenges to the state's franchise tax (a tax Texas levies on businesses) and possibly exempt corporations and other business entities from paying up. The Legislative Budget Board agreed in a May 15 letter, writing that failing to define "individual" could lead to interpretations that "include entities that are currently subject to the state's franchise tax."

Texas Comptroller Glenn Hegar estimated in January that the franchise tax would bring in more than $8 billion during the 2020-21 biennium.

An amendment proposed by State. Sen. Royce West, D-Dallas, to replace "individual" with "natural person" in the bill's text failed. Three Democrats crossed the aisle to support the final resolution, giving the measure the two-thirds support it needed to go before voters.

But the day before the Legislature adjourned, both chambers passed a bill amending the tax code so "individual" means "natural person" and excludes corporations, business associations and other legal entities.

The change alleviated the concerns of some tax experts, who said that the language of House Bill 4542 creates a definition of individual that could apply across the tax code and act as a legal defense in the event of a challenge to the franchise tax. Lavine said HB 4542 assuaged his concerns about a potential legal loophole for businesses, but he still expects a battle in the courts if Proposition 4 passes.

"There’s going to be somebody who is going to challenge it," he said.

Early voting begins Monday and runs through Nov. 1. Election Day is Nov. 5. For information on where to vote and what's on your ballot, visit Vote 411.

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Disclosure: The Center for Public Policy Priorities has been a financial supporter of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here.