Mailing Address: P.O. Box 12666
Austin, TX 78711-2666 Robert E. Johnson Bldg. 1501 N. Congress Ave. - 5th Floor Austin, TX 78701
LEGISLATIVE BUDGET BOARD
512/463-1200 Fax: 512/475-2902 http://www.lbb.state.tx.us
M E M O R A N D U M
TO:
Representative Dennis Bonnen, Chairman, Ways and Means Committee
FROM:
Kevin Kavanaugh
DATE:
April 7, 2015
SUBJECT:
Requested Analysis: $3 billion tax cut scenarios Attached is the request you made for a comparative dynamic analysis of the various tax reduction scenarios. We ran three scenarios in the model: (1) $3 billion sales tax rate cut (2) $3 billion franchise tax rate cut (3) $3 billion homestead exemption increase with the state reimbursing the school districts for lost revenue. On the expenditure side, we used the same parameters as we discussed such that we included the assumption that General Revenue Dedicated balances would be used to certify the budget in the out years; this amount is limited to $3 billion, which is consistent with the level that has been discussed as the maximum to be used for the 2016-17 biennium. With that assumption in place, it is not necessary to make any assumption on the allocation of expenditure reductions because the GR-D balances were enough to offset the revenue losses, so no expenditure reductions were necessary. We can certainly run the reverse scenario, in which balances are excluded and spending reductions implemented. The three tables are a relative comparison of the first tax cut type in the table title to the second tax cut type in the table title. For example, the interpretation of the top left number in Table 1: In fiscal year 2016 there will be an estimated 35,330 more jobs in the sales tax cut scenario than in the homestead exemption increase scenario. In the interest of time, we are not including the full write-up that would be included in a standard dynamic impact statement; please let us know if that text would be helpful. Also, while the levels of the economic measures were higher, the relative differences between scenarios shown in the tables were nearly identical when assuming a $4 billion tax cut, so we have not
April 7, 2015
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included those at this time, but we can certainly follow up with them. Finally, because these tax cut scenarios are compared to each other, and not to the baseline, the Budget Results section comparing the tax cuts to the baseline scenario is not included. We are happy to run any other scenarios you would find helpful; please let us know if you have any questions or would like additional analysis. cc: Andrew Blifford Jennifer Rabb Ursula Parks Scott Dudley Stewart Shallow Wayne Pulver Central Files
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