Jason Isaac fires off flawed "largest tax increase" claim

Jason Isaac, the Republican nominee for the Texas House seat held by Democrat Patrick Rose of Dripping Springs, makes dramatic claims about Rose in a video ad posted online Oct. 7. Rose mostly votes with liberals, Isaac says, proposed nearly $15 billion in new government spending and supported universal health care for Texas--charges that could prove fodder for the Truth-O-Meter.

Isaac's spot, "A Liberal Thorn in Our Side," also echoes a charge leveled earlier this year against GOP Gov. Rick Perry by U.S. Sen. Kay Bailey Hutchison. In January, we rated False Hutchison's statement that the state's revamped business tax amounted to the largest tax increase Texas has ever had. Isaac's campaign consultant, Corbin Casteel, pointed to the same 2006 tax law, House Bill 3, as the basis for Isaac's "largest ever" tax-increase claim.

In checking Hutchison's statement, we noted that her campaign said the revised franchise tax, often called the margins tax, cost taxpayers $8.8 billion in 2008-09. Her camp compared that figure with the estimated $5.7 billion tax package signed into law in 1987 by Gov. Bill Clements. At the time, that increase was widely reported to be the largest tax hike in Texas history.

Yet we identified fatal flaws in Hutchison's math. For instance, the $8.8 billion figure is the total amount generated by the franchise tax, not the net increase resulting from the revision that became law under Perry. So it's misleading to cite that number when discussing tax increases. The actual increase — revenue above what the old franchise tax would have brought in — was about $3 billion, significantly less than what had been projected.

We compared that with the largest single piece of the Clements-era tax package: a hike in the sales tax. After it was enacted, sales tax revenues went up $4.2 billion during 1988-89 compared with the previous biennium.

Another twist: The broadening of the franchise tax didn't necessarily mean businesses paid more taxes overall after the 2006 changes. Some companies actually wound up paying less, thanks to reductions in school property taxes that was part of the deal. According to experts, there are several ways to try to determine which was the state's largest tax increase in history. We used the simplest, looking at total dollars brought in. Another way would be to calculate the percentage increase of franchise tax revenue and compare that to percentage increases in other state taxes.

By the percentage approach, the 51 percent increase in franchise tax revenue for 2008-09, compared with the previous biennium, was not the largest for that tax. After the Legislature revamped the franchise tax in 1991, revenue grew 92 percent over the next two years.

Hutchison's campaign took the dollar approach to the franchise tax instead of percentages. On either basis, the 2006 changes to the franchise tax didn't deliver the largest tax increase in state history.