Texas has the Third Most Regressive Tax System in the U.S.

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High-income earners in Texas pay some of the lowest state and local taxes compared to other states. But low-income earners pay for it.

The New York Times recently reported on the latest data from the Institute on Taxation and Economic Policy (ITEP) on how income relates to the share paid in state and local taxes.

Nationwide, the poorest 20 percent of Americans will pay an average of 10.9 percent of their income in state and local taxes in 2015, while the top 1 percent will pay an average of 5.4 percent. That means the share of income that the wealthiest are paying towards state and local taxes is roughly half the share of the lowest-income earners.

In Texas, the inequality is even worse. The top 1 percent only pay, on average, 2.9 percent of their income in state and local taxes – one of the lowest rates in the nation. Meanwhile, the lowest 20 percent of earners pay an average of 12.5 percent of their income in state and local taxes – one of the highest rates in the nation. That comes out to a tax burden for low-income earners that’s roughly 4.3 times as high as for the top 1 percent.

This disparity lands Texas’s tax structure as the third most regressive in the U.S. As the Center for Public Policy Priorities puts it, “Texans who are least able to afford it pay more in taxes as a percentage of their income than those who could easily afford to pay more.”

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The fact that such inequality exists in Texas’s tax system is no surprise. Because Texas has no income tax, the tax burden falls on consumption-related taxes. And consumption takes up a much greater share of the low-income family’s budget than the wealthier family’s. According to the ITEP report, “No income-tax states like Washington, Texas and Florida do, in fact, have average to low taxes overall. However, they are far from ‘low-tax’ for poor families. In fact, these states’ disproportionate reliance on sales and excise taxes make their taxes among the highest in the entire nation on low-income families.” Texas actually gets two-thirds of its tax revenue from sales and excise taxes, compared to a national average of around one-third.

 

 

 

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About Author

Emily Cadik

Emily is a Texas ex-pat and proud Longhorn living in Washington, DC, where she remains connected to the Lone Star State through her work on BOR and her enthusiasm for breakfast tacos. She works on affordable housing policy, and writes about health care, poverty and other social justice issues.

7 Comments

  1. kristi herrera on

    I am taxed like no tomorrow here. I moved to Taxes last June from Nevada. What a difference in tax structure. Like I said, I am new here, and I can’t believe the voters here in Taxes have put up with all these tax increases over time.

  2. Interesting but wildly inaccurate. The property taxes in Texas are about half the tax burden. If you are rich and have a big house your taxes can be tens of thousands a year. If you are low income you rent and you don’t pay the taxes directly, the owner does. If you are better off you can get a small house and a “homestead exemption” in most counties and the taxes are a few hundred a year. Over 65 and retired, hey there is another exemption added. We don’t tax the value of your car like a lot of places for license plates… it is based on weight and runs $40 – $60 a year. Most food is not taxed. Eat in a fancy restaurant (like a rich person) and you get taxed. Buy booze you get taxed. Not really an unfair system as the article described it. Whoever wrote this didn’t look into the details… if you add all property and sales tax you can get to 12.5% cited… but they failed to look at the exemptions… which for low income people are very powerful. The homestead exemption in Dallas county is about $65,000. It doesn’t mater if you have a $65,000 house or a $665,000 house.

    • I’m not sure your claims are accurate. To use your example, if a person owned a median priced house -$131,000 – located in the Dallas ISD and Dallas County Emergency services district they would be liable for almost $7200 property tax bill in 2015. By claiming the homestead exemption (HE) their bill would be over $5700. Granted that the over 65 exemption falls dramatically, but that population only comprises 9.5% of Dallas County. (I’m not sure where the $65,000 came from. Dallas County gives a 20% reduction in valuation for the HE.)

      By doing some quick math using the median household income of Dallas County of $49,000 you can quickly see that property tax rate without claiming the HE comprises 14.7% of that household’s income. That rate is 11% with the HE. (Then there is the 8.25% sales tax on taxable goods we haven’t touched on.)

      Note that home ownership rate in Dallas County is 52.5%. The remaining 47.5% don’t pay their property tax rates directly, as you said, but neither do they get the exemptions – so in essence they pay a higher rate on valuation.

      Without delving in to the deep abyss of tax rates and valuation the article is accurate. As a lifelong Texas resident, I know the tax structure imposed upon our citizens is highly regressive. But that is nothing new.

  3. This is what you get when you vote for Republicans and tea baggers. Your children are starving, your state parks are falling apart and your taxes are loaded onto the poor.
    Most folks would learn from that but Texas just doubles down on stupid every single time.

    • Texans, in general, are some of the most anti-social humans since the species evolved. This wasn’t always the case, but since the Civil Rights Era, the people who couldn’t accept the idea that All Humans are Created Equal have fled to Texas where they continue their anti-human, wrong-side-of-history and ultimately doomed battle.

      The way to deal with Texas is to stay clear insofar as possible, and if you must go through – stock up on EVERYTHING before you hit the border and make sure you have enough fuel and water to get through without stopping more than once. San Antonio and Austin are usually safe for ‘furriners’ as long as you’re not sitting still for more than a few minutes.

  4. I live in Illinois and you think that your taxes are high. That is ridiculous. Everyone pays local, state, sales, property, and so many other taxes. Just because Texas has no state income tax does not mean that everything is better or worst. What they are implying is right. If I earn the money I should get to keep more of it. If I want to spend it on various luxuries, I should pay the taxes for that special use. It is silly to blame them for wanting to cut government. The larger the government the higher the tax burden and the less likely anyone will benefit from any of the money being paid. Just because there is a lower tax does not guarantee anything either. The truth is that people want the government to carry a function that it was not meant to carry. It should not be taking from one group and giving to another. It should be overseeing how things are being done and punishing people who break the laws. That is its function, if there are people who are not able to care for themselves, it is the duty of their families, the churches, and those who are philanthropist to pitch in, not the government. Based on every rule of economics available, the government wastes more than it will ever benefit. Higher taxes or lower taxes is not the problem, it is really poorly structured government. If the government is larger it will eat up twice as much money as it collects always.

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