Taxes and Fiscal Justice in Texas

By Syed Hassan

The taxation think tank, the ‘Institute of Taxation and Economic Policies’ (ITEP), ranked Texas as the second most regressive state in the nation in a recent report. According to its research, the top one percent of Texas income earners pay 3.1 percent of their income in taxes, while the bottom 20 percent pay 13 percent. Middle-income wage earners pay a rate of 9.7 percent, according to the report.

ITEP places Texas in a group named the “Terrible 10.” Most of the states in this group don’t have state income tax. The Lone Star State also uses a “gross receipt tax,” rather than a state corporate income tax.  Unlike many other states, Texas has no taxes on polluters, goods in transit and machinery and equipment used in manufacturing. Franchise tax rates are low in Texas and sole proprietorships and general partnerships are exempt.

Texas ranks near the bottom when it comes to minimum wages, $7.25 an hour which is the federal minimum wage.  In addition, a minimum wage earner in Texas is taxed excessively, while top wage earners pay relatively little in state taxes. This practice is contrary to the principle of economic justice.

The state’s portion of the sales tax is 6.25 percent. An additional two percent can be added by local municipalities and counties, resulting in a maximum rate of 8.25 percent. School districts and special districts also benefit from the additional two percent. Heavy reliance on sales tax for public funding creates out of proportion burden on low income earners, as they spend much higher proportion of their income in consumption then rich

The inadequate taxation on corporate income in Texas, tax abatements and tax holidays by the state and local jurisdictions place an unfair burden on low and middle income Texans, as they cover for lack of revenue from corporate sector.  This is how corporate lobbies, political action committees and other influencers experience a significant return on their lobbying expenses. The outcome is clear, higher taxation on working people

It is argued that tax incentives for corporations and big business interests result  in job creation. That is not necessarily so. The result is not that workers have larger incomes to spend. The rich benefit, while the fiscal burden is shifted onto the backs of low and moderate income employees.

The shifting of the tax burden is not only counter-productive but it acts as an impediment to the state’s long term economic progress.  It also creates a lack of funding for public school systems and badly needed infrastructure projects. It also contributes to increased numbers of poor people, and income disparity.

Continued shortages in state funding for public schools force school districts to request increased property taxes. In Texas, property tax abatements and tax forgiveness programs reduce the pool of taxable properties. These policies force local authorities to raise property taxes and increase assessments. Again, common residents pay high in taxes to cover for loss of revenue from corporate sector and rich

States in our country that have progressive personal income and corporate tax rates do not transfer fiscal burdens to their residents. On the other hand, increases in the minimum wage generate higher tax revenues.  It should be obvious to fair-minded people that higher disposable incomes for low and moderate income people benefit the economy,  and incentivizes personal investing.