Bold entrepreneurship, limited regulation, and a firm basis in free-market principles have made Texas the global economic powerhouse it is today. Despite its economic leadership, Texas lawmakers are now considering bills that would impose burdensome payment processing regulations that would crush small businesses while handing big-box retailers a competitive advantage.
The bills — SB 2026 and HB 4124 — would mandate the separation of sales tax and tips from transaction totals. This might sound straightforward, but it would produce devastating financial consequences. Local businesses already battling inflation and rising costs would be forced to overhaul their entire payment infrastructure. That is, the bills would drain finite resources from Texas entrepreneurs at the worst possible time.
Corporate retail giants with deep pockets will easily absorb these costs. Big box stores have extensive financial reserves and teams of corporate lawyers, allowing them to navigate complex regulatory systems and shoulder heavy burdens. It’s the neighborhood cafe, family-owned hardware store, and local boutique that will bear the brunt of this unnecessary regulation. They have tight margins and small teams. And when small businesses struggle, consumers inevitably face higher prices and fewer options.
This heavy-handed approach mirrors a failed policy from Illinois, a high-tax and high-regulation states. In the Prairie State, similar legislation triggered costly taxpayer-funded litigation and created special carve-outs for out-of-state financial institutions. The lawsuit raises concerns about the fundamental unfairness of this kind of legislation. Economic regulation should try to create a level playing field, not pick winners and losers in the market. There is no reason why the beacon of prosperity and freedom like Texas should want to import regulatory overreaches from poorly run states like Illinois. There is a reason blue-state residents are packing up and moving to Texas.
The bill particularly disadvantages Texas-based community banks and credit unions that have faithfully served local businesses for generations. These hometown financial institutions would suddenly operate at a competitive disadvantage against national banking giants — hardly the Texas way of rewarding loyalty and local investment.
Texas lawmakers should take special care to avoid penalizing the local businesses — the businesses of their constituents There are many difficulties that small entrepreneurs face when creating businesses; it’s just a fact of life for people trying to go into business. But the government should not add extra barriers that prevent small businesses — which often have innovative business models — from competing with incumbents.
Holding back small players not only hurts small businesses but the entire competitive process. To ensure markets remain dynamic and innovation continues apace, it’s critical that new insurgents have the ability to challenge established players and try new ideas and business models. Ultimately, limiting innovation contributes to stagnation and hurts consumers.
Of course, advocates of the policies of SB 2026/HB 4124 have good intentions. But good intentions don’t erase the unintended consequences of bad regulation. Policymakers must look past the first-order effects of proposed legislation to see the unintended effects — or what French economist Frédéric Bastiat called that which is unseen. As American economist Thomas Sowell says, there are no solutions, only tradeoffs. The tradeoffs of SB 2026/HB 4124 are on net a bad bet. In this case, it’s clear that the juice simply isn’t worth the squeeze, as the saying goes.
This bill isn’t just bad policy; it’s a direct assault on the economic model that has delivered prosperity and opportunity to Texas. Markets and consumer choice are almost always best situated to allocate resources, set prices, and otherwise determine what the economic landscape will look like. When government picks winners and losers, taxpayers and consumers almost invariably lose.
Texas lawmakers face a clear choice: maintain the state’s well-deserved reputation as America’s economic frontrunner or surrender to special interests pushing regulations that benefit the few at the expense of the many. The path forward is equally clear. Reject SB 2026/HB 4124 and recommit to the free-market principles that make Texas exceptional.
David Williams is the President of the Taxpayers Protection Alliance.
