Tax Retorm Idea in 2014 Texas GOP Party Platform

Would you believe me if I told you that the citizens and businesses of our state where paying more than 7% more than they should have to pay to the federal government? Probably not. Yet if a Tax Reform measure suggested by the Texas GOP were to actually be put into place that is how much Texas could see in savings. What is this tax reform plan? It is called the 1-2-3 No Federal Tax Plan. No it is not a way to totally avoid paying federal taxes. But it is a way to avoid your citizens and businesses from having to pay any taxes directly to the federal government. Now do I have you really confused? I probably do, so let me explain a bit about the 1-2-3 No Federal Tax Plan.

The plan is a change in the method of federal taxation that allows a State like Texas to elect to return to the method of tax collection that was done when the United States was first formed. The states were responsible for collecting the taxes for the federal government and the amount they were responsible for paying was based on the method of apportionment outlined in Article 1, Section 2 of the U.S. Constitution. Originally this method, while fair, did not work very well because each of the States looked to their own needs first and did not pay their fair share to the federal government. The federal government was weak and unable to demand payment. But a lot has changed since then. For one the 16th Amendment has given Congress the right to pass a tax on income. Now an important distinction is that the 16th Amendment says Congress MAY pass a tax on income. It does not mandate that it has to require a tax on income. So if Congress were to pass a simple bill that was signed by the President then a state that wanted to raise and pay the taxes for their citizens would be free to do so. More importantly it would be Constitutional. If the state does not pay in a timely manner, the feds can just require it to return to the current tax code and IRS collection.

Why would any State want to elect to opt out of the current tax code? Citizens suspicious of the IRS? Ability of the State Legislature to make the decisions on what it the best method of taxing its citizens and business. Being able to give the State a competitive advantage in attracting business to come to the State, based on how it structures its tax laws to collect its share of the federal tax. Because the tax plan proposes that a business can select its location for paying all federal taxes based on its domestic state of incorporation, Texas has an obvious advantage if this plan were to be adopted. In fact the numbers based on 2013 gross collections by the IRS after refunds shows that Texas’s citizens and business paid in $214.8 billion dollars in all forms of federal taxes and entitlement program payments. If the total taxes collected for 2013 were apportioned based on the 2010 census population in Texas of 25,145,561 as it related to 312,471,327 in the US, Texas would have seen its total taxes and entitlement payments reduced to $200.4 Billion. That is a whopping savings of $14.4 billion dollars. Does this now peak your interest?

Why would Congress be interested in doing such a plan? Frankly they are not. They see no benefit for it. Not all states would benefit from this plan. In fact some of the states that would be penalized the worst are the ones that would like to have it in place. e.g. Republican States. But States like Alabama, Mississippi and South Carolina would be heavily penalized if they were to elect to go under this plan. Therefore, the only way this will be allowed to happen will be if they have the option to OPT OUT. But it has a major benefit in the fact that the United States is currently losing a lot of its businesses due to inversions because of the unfavorable tax environment. By allowing states to compete for business, maybe the businesses will relocate intrastate versus international if given the chance. This is not a Republican Tax Plan or A Democratic Tax Plan, it is an American tax reform plan.
Attached is a simple analysis of data taken from the IRS reports for 2013. The numbers have also been done for 2010 and 2011 and they look similar. As you can see, Texas is a State that along with Delaware, Minnesota, Connecticut, New Jersey, Massachusetts, Nebraska, Rhode Island, New York, North Dakota, Ohio, Illinois and Arkansas would benefit the most from this plan when the District of Columbia is not considered. I am sending a similar letter to the governors and governor elects for each of these states. Also attached is a bill that has been suggested could be attached to the December Continuing Resolution to implement such a plan.

This is not a level playing field, but one which Texas would have a strong starting advantage. For the sake of your citizens and business in Texas I hope you will consider pushing this plan with Texas’s congressional delegation so it can get a fair consideration.