Business-Oriented States: Texas, Kansas; Others Unfixable

Don sent me a selection of interesting stories that have some common themes.

A big story coming out of Texas: considering eliminating the "business tax."

As the federal tax bite grows, there is a nascent movement at the Texas Legislature to phase out the tax, commonly called the margins tax, without replacing it.

Business leaders and some conservative lawmakers say the tax, which taxes gross receipts as opposed to profits, is complicated and not applied evenly. Other critics of the tax say dropping it would make the state’s business climate even more attractive.

At first blush, eliminating the tax without a replacement might seem improbable. The tax raised $4.5 billion in 2012 and accounted for 10.3 percent of the state’s total taxes, according to the comptroller’s office.

Texas does have budgetary problems, so this is not without controversy, which you can read about at the link.

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The next two stories, both coming out of Kansas. Taking them together suggests the state legislature is very serious about improving the business climate and accelerating oil and gas activity in the state.

First: reduction in state income taxes which includes exempting 191,000 businesses from all income tax.

Sweeping changes in the Kansas tax code take effect Tuesday, when new rates for individual income taxpayers take effect.

The top individual income tax rate drops to 4.9 percent from 6.45 percent. The owners of 191,000 businesses are exempt from income taxes. 

Second: Kansas has put the red carpet out for fracking companies

While other states struggle with how best to regulate horizontal drilling and hydraulic fracturing, or wonder whether to permit the practice at all, Kansas is actively courting fracking firms in the hope of repeating North Dakota's oil boom.

Interest centres on the Mississippian Lime Play (MLP), a porous limestone formation found under parts of southern and western Kansas as well as across the boundary in northern Oklahoma.

The Mississippian Lime has already produced more than 1 billion barrels of oil in the state since 1915 from conventional wells but was considered largely tapped out.
Now horizontal drilling and hydraulic fracturing have kindled hopes of a new oil rush as drillers unlock oil and gas previously trapped in impermeable parts of the rock formation.

Seeing these stories coming out at the same time suggest some states are taking steps to separate themselves from states with serious budgetary problems, like California and Illinois.

For more on the Mississippi Lime, see the link at the sidebar at the right.

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With regard to Illinois, in today's edition of the WSJ:

Illinois legislators, caught between public-employee unions and Wall Street credit-rating agencies, weighed a divisive plan on Monday to dig the state out of the nation's deepest pension hole by cutting retirement benefits.

Illinois is wrestling with a $95 billion pension gap that has left it neck-and-neck with California for the worst state credit rating in the country. The Democrat-controlled legislature has been stalled over how to reverse its failure over decades to adequately fund pensions for state workers.

Two competing plans are working their way through the legislature. The House is debating a six-year freeze in the cost-of-living increase for retirees and an increase in employee contributions, among other changes. The Senate last year passed a bill requiring those in the pension system to choose between a diminished cost-of- living increase and retiree health benefits.

Back on November 22, 2012, the WSJ called Illinois "the Unfixable."

Illinois's pension system is heading for a meltdown and may now be beyond help. That's the forecast from a Chicago business group, which told its members last week that the state's pension crisis "has grown so severe" that it is now "unfixable."

The Commercial Club of Chicago wrote that because the November elections did not bring in lawmakers willing to push real reform, the state's roughly $200 billion debt now threatens education, health care and basic public services. The problem is worsening so fast that the usual menu of reforms won't be enough to keep public pensions from sucking taxpayers and whole cities into its yawning maw.

Yawning maw.  The tea leaves suggest there is no support at the federal level to bail out Illinois, or California, though we will be seeing more stories along that line over the next couple of years.