There is always a lot of talk about taxes in Austin. One of the selling points politicians like to make is reminding people we have no state income tax (other states with no state income tax are Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming).
That sounds really good, until you ask yourself how Texas pays the bills without one. The answer is sales and property taxes. Texas has the 12th highest sales tax in the nation at 8.17 percent (Tennessee is the highest with a 9.46 percent).
Texas also has a higher-than-average effective property tax (Fifth highest in the nation). This has gotten the attention of Austin lawmakers who are crying foul and looking to find ways to have municipalities cutback on their tax rates, but education officials say not so fast. Thanks to Austin cutting back on funding for education, schools and other government entities look to property tax to fill the gap.
A 2010 report from the Texas Conservative Coalition Research Institute found funding for education in Texas to be “antiquated”. The study group was co-chaired by Dan Patrick, now Texas’ lieutenant governor.
While an argument can be made on both sides of the issue of state income taxes, one thing seems to be very clear, not having a state income tax hurts the poor. Why? Because a state income tax is based on what a person earns. Sales taxes are considered regressive because they don’t change based on a person’s income. Someone making $15k a year pays the same tax for a gallon of milk as someone who makes $150k annually.
If you look at taxes paid as a percentage of income on the poorest to the wealthiest, Texas ranks fifth in the nation for having the most regressive state tax system. The poorest 20 percent pay 12.6 in taxes compared to the middle class (8.8 percent) and the top 1 percent (3.2).
Much like the federal tax system, the Texas tax system needs some fixing. It’s a simple question; how do we want to collect money to pay for state services. The answer? Well that’s a little harder.