One of the most basic laws of economics is that if you tax something, you get less of it. So why is business-loving Texas one of the few states that imposes a damaging tax on business revenue?

In its current form, the Texas margin tax dates to 2005, when the state overhauled its franchise tax to raise money for school financing. The margin tax was sold as a fair, transparent way for the state to raise needed revenue. In practice, the tax hasn’t lived up to these standards. In fact, the margin tax represents everything people hate about paying taxes.

1. It’s complicated. The margin tax includes four different methods for calculating a business’ tax base, multiple tax rates and numerous deductions and exemptions, all making it difficult to even summarize how the tax works in practice. In some cases, a company may find it costs more to calculate what they owe than what they will actually pay. The law’s complexity has also resulted in several high-profile lawsuits, as businesses have sought refuge in the courts from bureaucratic uncertainty.

2. It’s unfair. Economists long have criticized gross-receipts taxes because they disproportionately burden some types of businesses more than others. Unlike a retail sales tax, which is imposed once at the end of the production and distribution process, a gross-receipts tax (like the margin tax) can apply at multiple points along the way. A company that buys lumber to build doll-houses, for example, could end up paying higher effective rates than a service-oriented business, like a law firm.

3. It’s hidden. Each time a good or service is taxed, the cost of the tax is passed on to the next buyer in the form of higher prices. The cost of the margin tax is therefore borne largely by consumers, rather than businesses themselves. But unlike a retail sales tax, people have no way to know just how much the tax is costing them in the form of higher prices.

4. It’s bad for business…and everyone else. According to recent analysis by University of Texas at San Antonio professors John Merrifield and Corey DeAngelis, personal income in Texas is between $30.5 billion and $46.3 billion lower than it would be if the margin tax had never been enacted.

5. It doesn’t raise much money. Perhaps surprisingly, given the economic damage it causes, the margin tax hasn’t proven very effective at raising revenue. When originally enacted, the margin tax was projected to bring in $5.9 billion in revenue a year. Instead, revenue from the margin tax totaled only $4.5 billion in 2008 and $4 billion in 2009.

6. It puts Texas at a competitive disadvantage. The margin tax is making Texas out of step with other states. Only four other states have a gross receipts tax, and several states have recently moved to repeal their versions of similar taxes. Just last year, voters in Nevada rejected a proposal to enact a gross-receipts tax along Texas lines. The margin tax’s continued existence is a serious drag on Texas’ economic competitiveness. According to a study by the Tax Foundation, were Texas to repeal the margin tax, it would immediately jump from 10th to 3rd in the rankings of states with the most business-friendly climates.

Given the large volume of tax revenue currently flowing into state coffers, repealing the margin tax is not only possible, it may be necessary to prevent the temptation to overspend. More than a half-dozen bills already have been filed this session that would either phase out or immediately repeal the margin tax. The Legislature should follow through and put the tax out of its misery.

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