Texas has been termed to possess the third most regressive tax system in the United States. Taking a scope into the taxation system in Texas, one will not fail to notice that high-income earners in Texas are the ones contributing the least to local taxes compared to other states while the low-income earners are the ones covering for it all. Sales taxes and property taxes are the main sources of taxes in the US. Properties taxes directly refer to levy that properties owners are entitled to pay to the government, the taxes collected are governed by jurisdiction under which the property is located either given to the federal state, the government, municipality or geographical region. On the other hand, sales taxes are the fees provided to the governing entity for the sale of good and services which fall under their jurisdiction. Though usually the law permits the seller to collect taxes from their customers at the point of purchase (Nichols & Nichols, 2011).
Nationally in the United States, 20% of the poorest population of Americans contributes an average of 10.9% of their income to the state and local taxes which is according to 2015 financial report. The remaining 1% of the affluent population is only responsible for 5.4% of their income. The above information above translates that the wealthiest community contributes to half of what the poorest population is contributing to the state and local taxes. In Texas now, the inequality issue is much worse as the top 1% of the affluent population contribute only 2.9% of their income to the state and local taxes which is one of the lowest rates in the United States. Surprisingly the lower 20% of the poorest population earners contribute an average of 12.5% of their income to the state and local taxes – which happens to be the highest rate in the United States (Wood, 1999). The fact that there exists inequality in the Texas’s tax system is no surprise at all since Texas tax burden is carried to consumption-related taxes as there are income taxes in Texas. This explains the inequality situation in Texas as consumption takes up a greater share of the low-income earners family’s compared to the wealthier fraction of the Texas residence (Austin, 1999).
The idea of capping both property and sales taxes will help the community in Texas in a bigger way. Taxation capping has been proposed by many economists as it has been noticed that excessive taxes on the population has a negative impact on economic growth and international competitiveness. The proposed capping move will make sure that every Texas citizen is obligated to tax payment without the poor being extorted while the rich are being spared. The capping is meant to correct the market failure which means all the Texas occupants will have a level plain field where they can all compete fairly. Granted a common ground, the economy will be boosted as all the citizens will be contributing equally to the States revenue. It has been indicated that capping on both property and sales taxes will bring the budget to 8.3% lower than the existing budget for the Taxes citizens who will, in turn, have enough money for the lower 20% to improve their lives (Poterba & Verdugo, 2008).
The above information opens up a learners’ understanding of how state revenue is raised and how some taxation system might be a burden to a given disadvantaged population in society. Through this study, a learner also learns on which mechanism to apply so as to elevate the disadvantaged lot from the oppressing taxation system that is being imposed on the citizens.
- A survey of taxation in Texas; information bulletin. (1999). Austin.
- Nichols, E. R. & Nichols, M. M. (2011). The state sales tax. New York: H.W. Wilson.
- Poterba, J. M., & Verdugo, A. R. (2008). Portfolio substitution and the revenue cost of exempting state and local government interest payments from federal income tax. Cambridge, MA: National Bureau of Economic Research.
- Wood, E. (1999). The Local Government Bill: Best value and council tax capping. London: House of Commons Library.