In Dallas, a Texas stock exchange could be opening for trading as soon as next year.
Building out the growing financial hub in Dallas – dubbed Y'all Street – is something state lawmakers are heavily invested in, which is why Texans will be voting Nov. 4 on a handful of constitutional amendments that could help boost the finance industry in the state.
Bulent Temel, an assistant professor of practice at the University of Texas San Antonio, joined the Standard to talk about these proposals.
This transcript has been lightly edited for clarity:
Texas Standard: Let's start with Proposition 2, an amendment that would add a constitutional prohibition against the state taxing realized or unrealized capital gains for individuals, families, estates, or trusts.
Many Texans assume Texas doesn't have a capital gains tax already, which is largely true, so I'm wondering what in practical terms are voters approving or rejecting with this amendment.
Bulent Temel: You are correct that we don't have capital gains taxes in the state currently. And by approving this measure, essentially, voters would be perpetuating the nonexistence of these taxes deep into the future.
It would mean that the state's pro-business characters would be sustained beyond the current political leadership. Which is why this is proposed, because political leaderships are temporary, but political regimes can be near permanent.
I see, so trying to bake in this sort of pro-business approach that current leadership has. How do you think that's going to affect investor behavior or, you know, business formation or even that financial sector's growth I was talking about?
It could accelerate the investments into Texas because it would strengthen the state's status as a pro-business type of state because this removes these current advantages that the investors would have from leadership dependence. And they no longer become temporary.
And such predictabilities typically translate into higher investments done into the economy. So that's what we're hoping, or at least policymakers are hoping for.
» MORE: Your guide to all of Texas' proposed constitutional amendments on the ballot this November
Proposition 6 would prohibit the Texas Legislature from creating new taxes on securities, transactions, or levying an occupation tax on entities like financial institutions, brokers, dealers or a registered securities market operator.
This seems to be directly aimed at Y'all Street. What role would this ban play as you see it?
It's very similar to the first benefit we discussed. So this particular proposition is precisely for the Texas Stock Exchange that's opening in a few months' time. And then the New York Stock Exchange, Texas that will be opening shortly after that.
And essentially the state's policymakers are trying to sustain the advantages that these exchanges have in the state. We also do not have either one of these taxes currently, but putting him on the constitution continues this beyond the current leadership's term.
Proposition 8 would constitutionally forbid the Legislature from imposing a so-called death tax – a state tax, an inheritance tax, legacy tax, succession gift taxes.
Texas doesn't have a state-level death or inheritance tax, either. So we're talking about the same kind of thing: sort of baking it into the constitution, making it hard to remove. And what are the potential implications there?
Yes, so we did eliminate the inheritance taxes about 10 years ago in Texas because the idea was that this is double taxation, the person who acquired that asset during his lifetime already paid taxes on it to acquire it, and then when he passes away and his beneficiary receives it, if we tax him again the same asset will be taxed twice.
So with that idea, the inheritance tax has been eliminated for about a decade. And estate and gift taxes don't exist in Texas also. And the idea with these is similar, which I think the policymakers are hoping that perhaps the wealthier segments of the society will be more likely to stay in Texas in the future. This is what we call preventing capital flight in our industry.
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Proposition 9 would authorize the Legislature to exempt up to $125,000 of certain business inventory or equipment from local property taxes. What's the argument against that?
With all these propositions, one main challenge is what we call policy rigidity, which is that you adopt a policy and it stays there for long, long years. But the economy that it is satisfies changes. It's a dynamic reality, which means that as time passes and Texas economy's needs change, when we have these bans on the constitution, it will restrict the policy space available to future fiscal policy makers.
For instance, currently Texas' economy is doing very well and I hope it continues that way. But if Texas state's current surplus turns into a deficit in the future, then having these bans as a constitutional requirement will disallow the future policy makers to be able to adopt the fiscal policies they need.
That is the only potential challenge with these approaches, but this is more deep into the future and only under those negative consequences happening. Otherwise, these will be quite beneficial in the short term for the state.
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