In a rare display of good sense, the Dallas Morning News almost gets it right in an editorial on the Legislature’s new business income tax. But in arguing against the creation of new loopholes and exmeptions, they write “this new tax needs time to work.” In reality, the monstrosity needs to go away before it can do lasting damage to the economic credibility of the state.

Businesses will begin paying the tax this Spring, on their activity in 2007. The state’s comptroller, Susan Combs, recently announced a variety of administrative rules regarding the application of the tax. This was the basis for the DMN editorial.

The editorial piece correctly notes that the “old game of picking winners and losers never ends” when it comes to gaming the tax code.

What they fail to understand is that taxing business is nothing but a game of picking winners and losers. Why? Because business taxes are illusionary. Businesses remit a lot of taxes, but pay none. The burden of paying a tax rests with people — business owners, shareholders, employers and customers — shared in mostly invisible but very real ways (less profit, smaller returns, fewer raises, higher prices).

Taxes on business achieve a very practical political goal: hiding the cost of government. The populist rhetoric of going after “business” has some base appeal, but hids the fact that most businesses getting soaked by this new tax (and any business tax) are usually mom-and-pop operations struggling to make ends meet.

The Legislature enacted the business tax because too few lawmakers had the nerve to admit that government is simply spending too much and achieving too little. The business tax allowed the legislature to increase spending, while creating an illusion of addressing concerns about the property tax.

After all, the tax was enacted as a way to reduce our school property tax rates (the burden has continued to rise). Unfortunately, what most taxpayers find offensive is the sheer amount of money being spent on public education (and elsewhere) without discernable results.

Until that changes, expect more business tax games.

Michael Quinn Sullivan

Michael Quinn Sullivan is the publisher of Texas Scorecard. He is a native Texan, a graduate of Texas A&M, and Eagle Scout. Previously, he has worked as a newspaper reporter, magazine contributor, Capitol Hill staffer, think tank vice president. Michael and his wife have three adult children, and a dog. Check out his podcast, Reflections on Life and Liberty.

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