LEGISLATIVE BUDGET BOARD

Robert E. Johnson Bldg.

1501 N. Congress Ave. - 5th Floor
Austin, TX 78701

512/463-1200
Fax: 512/475-2902
http://www.lbb.state.tx.us

MEMORANDUM
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
Mailing Address: P.O. Box 12666 Austin, TX 78711-2666

April 7, 2015

Page 2

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