The potential economic impacts of alternative state taxes on different size Texas farms

Abstract

As school property tax rates rise to meet the increasing costs of education, so do lawmaker's concerns that this stagnant tax base may need to be replaced by a more dynamic tax alternative. Prior to the Seventy-Fifth Legislature, a staff work group was formed by the Governor and other state elected officials to examine possible alternatives to the school property tax. The group suggested three alternatives. This thesis investigates the individual impacts that a business activity tax, a business gross receipts tax, and the abolition of agricultural sales tax exemptions would have on the economic viability of Texas farms. A whole farm computer simulation model (FLIPSIM) was used to simulate seven representative farms producing five of the state's chief agricultural commodities (beef cattle, cotton, feed grains, rice, and dairy) in different regions of the state. The farms were simulated under four different scenarios (a baseline, and the three tax alternatives from the staff work group report) for I 00 iterations over a seven-year planning horizon. FLIPSIM results generated an empirical probability density function for the net present value of each farm to be used by STODOM, a stochastic dominance computer program, to determine which tax strategy a risk-averse decision maker would prefer for each representative farm. The results indicated that the baseline tax scenario was preferred by five of the seven representative farms, while the two fanns with the lowest net cash farm income preferred the business activity tax. If the baseline tax scenario were not an option, all of the farrns would prefer the business activity tax. The sales tax strategy was the most economically adverse tax strategy for all of the seven farms, doubling