The Texas House of Representatives has approved the Sharp Commission’s proposal to expand the state’s franchise taxes. The measure now moves to the Senate. Most Texans seem blissfully unaware of the monstrous nature of the tax that is about to be imposed upon them. Perhaps they think that it will be paid mostly by big business, without really impacting average Joe Texan too much.

Sadly, nothing could be further from the truth.

A friend of mine in Houston decided to do a little experiment. He asked several small businesses in his area to help him by filling out a tax sheet, first under the current franchise tax system, then under the Sharp Tax. Like many small businesses, these companies rent, rather than own, and thus will not see significant savings (if any) from the proposed reduction in property taxes. The results of their franchise tax calculations, however, were shocking.

Under the Sharp proposal, the average tax hike suffered by these small businesses would be an astonishing leap of more than 400 percent. Four hundred percent! Why such a massive increase? Haven’t legislators been claiming that extra funds for education will come only from a broadened tax base? Indeed, haven’t some claimed that the new tax is actually a tax decrease, because the franchise tax is being lowered from 4.5 to 1 percent?

These facts are somewhat true, but they omit one small, critical detail. Perhaps legislators are hoping that you won’t notice it. Otherwise, you might hold to account the 27 Texas House members who broke their pledge to oppose tax increases. Or you might remind the 4 State Senators who took the same pledge that they should vote against the bill when it comes before the Senate.

The reason that small businesses will experience enormous tax hikes is simple, really. The current franchise tax applies only to net profits—i.e. gross revenues minus expenses. The new tax rate would apply to gross revenue; the deductions allowed from this number would be limited.

My guess is that, once numbers are put to paper, virtually any business would choose the 4.5 percent net tax to the 1 percent gross tax.

My friend’s experiment reveals one additional, important point. The brunt of the tax will not fall on large corporations like Dell Computer or Exxon. To the contrary, these large companies can easily move their taxable operations to other states or countries, avoiding much of the new franchise tax. Moreover, they are more likely to own their own office space, leaving them free to benefit from the property tax reductions. No, the brunt of this tax will be suffered by those with less flexibility in their operations: Small business owners.

Perhaps a tax of up to $95,000 would have been a drop in the bucket to a big, global corporation. But to your local mom or pop store, such a tax is a big, nasty slap in the face.

If the Sharp proposal is enacted, two things are guaranteed to happen: First, large or new businesses will take their profits elsewhere, outside of the State of Texas. Second, the average small business owner will be hit right where it hurts most. Most will raise their prices in an effort to cover the higher costs of doing business. Perhaps some small businesses that were barely staying afloat will find themselves pulled under by the weight of their new tax liability. Inevitably, the overall Texas economy will take a beating.

If Texas legislators were actively trying to undermine the business climate in Texas, they couldn’t find a quicker, surer way to do it.

In their defense, I believe that most of our legislators have good intentions. High property tax rates have been a constant problem in Texas, and legislators appropriately want to lower those rates. But legislators have become so tunnel-visioned on fixing the state’s property tax woes that they are blind to the fact that the cure they are considering is much worse than the original disease.

Late Monday night, 27 Texas House members broke their pledge not to support tax increases: Leo Berman, Betty Brown, Fred Brown, Bill Callegari, Scott Campbell, Valerie Corte (standing in for Frank Corte), Tom Craddick, Myra Crownover, Dianne Delisi, Dan Flynn, Kent Grusendorf, Glenn Hegar, Fred Hill, Carl Isett, Jim Keffer, Phil King, Mike Krusee, Edmund Kuempel, Jerry Madden, Joe Nixon, Elvira Reyna, Gene Seaman, David Swinford, Larry Taylor, Corbin Van Arsdale, Martha Wong, and Bill Zedler.

In the upcoming days or weeks, four Texas Senators (Chris Harris, Kyle Janek, Todd Staples, and Tommy Williams) will be presented with an opportunity to either keep or break the same pledge. Let’s encourage them—and all of our state senators—to reject this massive tax increase.

If legislators do not pull their heads out of the sand, and soon, the damage to our great state will be severe.

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