The State of Texas has a regressive tax system. Lower income households see higher effective tax rates than households with higher incomes. The state does not have income taxes levied on individuals as a source of revenue. The significant sources of revenue in the State of Texas include sales taxes which accounts for an estimated 50% of the total taxes (House Research Organization 1). The state also gets revenue from the Federal Government which funds programs in healthcare, transport and education, this is done inform of outright grants or matching funds. The state of Texas gets non-tax revenue from fines, penalties, permits, fees and licenses such as business, hunting as well as driver’s licenses. The state also gets a considerable amount of revenue from vehicle sales and rental, housing sales, motor fuels, franchisees and insurance occupation.
The current system has the advantage in that without income tax; the state provides a good climate for new business incubation. It also makes the state an attractive location for corporation headquarters. The state is ideal for retirement. The system provides a light tax burden on service businesses because they are not impacted by sales and property taxes. The system also ensures that those who use certain services pay for them without having everyone pay for services they do not use. The current system has disadvantages in that it limits the state’s ability to respond to economic downturns (Liberal Arts Instructional Technology Services 2). The system is regressive in that the low income families feel the tax burden compared to high income homes. Also, the system limits the amount of funding received from the federal government because the distribution favors progressive tax systems.
Change that I would favor in the tax system is one that would include tax on all service sales. This would tax professional services such as architecture, engineering, advertising, accounting legal and financial services that have increased with the diversified economy. This would raise revenue for the state and increase fairness in the distribution of the tax burden.
House Research Organization. Sources of State Revenue in Texas. 82 (3). 2011. http://www.hro.house.state.tx.us/pdf/focus/Revenue82.pdf
Liberal Arts Instructional Technology Services. Texas politics. 2009. The University of Texas at Austin. !0 April, 2014 http://texaspolitics.laits.utexas.edu/9_4_1.html.