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Summary: HB 1348 clarifies law dealing with tax exemptions given to manufacturers in “defense base development authorities,” for economic development purposes. These authorities are political subdivisions created by municipalities to undertake economic development or “base efficiency” projects within defense bases that have been closed and are no longer used for military purposes. Currently, the property, income, and operations of authorities are exempt from taxation, as well as “leasehold(s) and other possessory interest(s) granted by an authority” to undertake redevelopment projects. In other words, tax exemptions can already be given to entities that take on redevelopment projects for authorities. HB 1348 clarifies that commercial aircraft manufacturing is one such industry. HB 1348 would make aircraft manufacturers located within defense development authorities exempt by presuming property associated with commercial aircraft manufacturing is, “interstate, international, or foreign commerce and not located in this state for longer than a temporary period,” to keep such property from being appraised and taxed.
Analysis: HB 1348 clarifies local government code that allows defense base development authorities to extend tax exemptions to entities doing redevelopment projects within the authority's jurisdiction. HB 1348 does not make a substantive change that would extend further tax exemptions that are not currently permissible by law. However, the policy of extending narrow tax exemptions to commercial aircraft manufacturers, although it might incentivize some manufacturers to set up shop in defense base development authorities and create jobs in the near term, puts Texas on shaky economic ground in the long term.
Instead of relying on free markets to spur job creation, HB 1348 allows local governments and defense base development authorities to effectively subsidize commercial aircraft manufacturing with targeted tax breaks. This strategy may yield results as long as local governments are able to offer such tax breaks, but they will not be able to provide the same tax treatment to every industry, and they will likely not extend the same tax treatment to competitors that may set up shop outside the jurisdiction of the defense base development area.
The best, long-term strategy for economic growth in Texas is to broadly lower tax rates for everyone, both individuals and businesses. This would maximize the resources available to the private sector and let individuals and businesses find the most effective ways to allocate their resources absent market distorting subsidies, and keep government from subsidizing chosen industries or industry players.
While we have concerns about the existing law, our recommendation is based solely on the merits of the legislation at hand. We support HB 1348 because it simplifies a complicated portion of law, providing a modest window of transparency on an opaque area of government, and because HB 1348 does not provide new preferential tax treatment. Texas must focus on promoting a long term, sustainable path for economic growth that relies on free markets instead of limited preferential treatment for favored industries in the future. We encourage legislators to support HB 1348.