07.27.12

It’s the inequality stupid

Posted in Around The State, Commentary, Inequality, Right Wing Lies, Taxes at 9:43 am by wcnews

Texas Is America’s Top State for Business 2012.

Texas ranks 44th among the states in overall child health and well-being.

Those two links highlight very well the state of our state. We’re 1st in taking care of businesses, and 44th in taking care of children.  That’s a strong indictment of the legislative and economic priorities our elected leaders have taken over the last several decades.

While the safety net in Texas was never particularly strong, we used to make public education a priority, had affordable higher education, and a solid – pay as you go – transportation infrastructure. Those, at least somewhat, enabled more equality, social mobility, and kept poverty from skyrocketing.  But those days are no more.  If the theory of trickle-down economics were true, we should all be swimming in prosperity.  Obviously that is not the case.

In Texas today, instead of talking about how to decrease inequality, those in power are actually talking about taking steps to make it worse.  The latest plan from the regressives is to raise taxes on working Texans, and lower taxes for those at the top.  Here comes the next wave in the assault on health care & public education in Texas.

To put this in perspective most states fund their government with a balance of three taxes major taxes – sales, property, and income.  Texas doesn’t have an income tax, has an under performing business tax causing annual shortages, and now we’re supposed to start looking at doing away with the property tax.  That not only makes no sense it’s crazy.

Let’s  boil down what Hilderbran is saying. As we face another budget shortfall, it’s time to begin the long process of abolishing the property tax in Texas.  But first we need to cut education spending more, (reduce the growth in property tax revenues being used for schools).  Because the property tax provides the majority of the money for public education. It’s a lot of money to replace (over $40 billion/yr.), and if it was just done away with it would have to be replaced by something that would generate many billions of dollars.  And the only suggestion offered is to double the sales tax.

It’s hard to find the starting point for attacking this, but here goes.  Texas already has one of the most regressive tax systems in the United States.  Which means the less money a person makes in Texas the higher a percentage of their income they pay in taxes, and vice versa.  The main reason for that is because our sales tax is so high.  The sales tax is a very regressive tax.  Another reason is because Texas does not have an income tax, one of the fairest taxes.  The property tax is a much less regressive/fairer tax then the sales tax.  Which makes it easy to see that removing the property tax and replacing it with a higher sales tax would hurt poor, working and middle class Texans, while making it better for wealthy Texans. (See Who Pays Texas Taxes).

The best option for The Public would be to bring down property taxes with a state income tax.

A state income tax is the progressive solution for what’s needed in Texas. Instead those in power are discussing how much to increase the tax burden on those at the bottom, and how much to decrease it on those at the top, GOP Battle Brewing Over Texas Taxes.

Moving Texas away from such heavy reliance on property taxes has been a key plank for conservatives for more than a decade. Like TXCCRI, the Texas Public Policy Foundation has also written extensively on the issue, providing the intellectual background for discussions in the Capitol and around the state.

Of course, the devil is in the details of which property taxes are abolished, and what – if anything – replaces those revenues.

Mr. Hilderbran has offered no immediate solution on that front, but as chairman of the House Ways and Means Committee, he would have a front-and-center seat in any such discussion.

A recent Op-Ed at Quorum Report, Measuring The True Costs Of A Property Tax-Sales Tax Tradeout, that went over the highlights of a new report on this latest scheme had this to say.

State Rep. Jim Keffer today unveiled a new study he commissioned to seriously evaluate the impact of replacing Texas property taxes with consumption taxes. The study was conducted by former Deputy Comptroller Billy Hamilton who sliced and diced the proposition.

His primary thesis is startling.

Hamilton writes, “One thing is certain. The tax rate would be eye-popping. The property tax currently produces more than $40 billion a year in Texas for all local governments. The state sales tax in 2011 produced about $21.5 billion at a tax rate of 6.25 percent.”

He continues that to simply replace the missing revenue would require adding another 11.6% to the current 6.25% charged by the state. Add the additional 2% collected by cities, counties and transit authorities, and suddenly the sales tax rate jumps to a staggering 19.85%.

In commissioning the report as part of his project, Texas Tax Truth, Keffer is challenging two vocal proponents of the property tax—sales tax swap: the Texas Public Policy Foundation and Tim Dunn’s Texans for Fiscal Responsibility/Empower Texans administered by Michael Quinn Sullivan..

[...]

Advocates argue that eliminating some sales tax exemptions would expand the base of taxable items and reduce the rate. But Hamilton points out that the Legislature has preferred to increase exemptions rather than eliminate them and that the current list of exemptions including food, medicine and real estate have been in place since 1990.

Hamilton also explains that eliminating property taxes would deny virtually all local governments’ and school districts any independence since they would have to come hat in hand to the state for any and all funding.

Anyone who watches the Legislature knows that one of things it does best is cost-shift downstream to local governments while withholding funding. Local control sounds good but is a mirage if local taxpayers have no control over their own tax dollars.

But the free market would work. A 20% sales tax would create and economic bonanza for Texas’ neighboring states as people voted with their feet. Hamilton does not mention it but Texas retailers complained about all the sales they once lost to Amazon because of a meager 8.25% cost advantage when Amazon did not collect sales tax.

The full report can be read here, A “Big Idea” That’s a Bad Idea for Texas. While the report highlights how extremely bad this idea is, this point in particular is galling.

The new tax would be more regressive in its effect on low- and middle-income Texans than the current tax system in that even if the consumption sales tax is “revenue neutral,” it could be a tax increase for many working and retired individual Texas taxpayers.  (To see how regressive Texas taxes are see the chart on page 13 of this report, Understanding Texas Taxes 2011.)

And a decrease for those at the top, of course. Instead of talking about eliminating taxes with a more regressive tax, we should be talking about making taxes in Texas more progressive with a state income tax. An income tax would enable property taxes to be lowered, while finally getting those at the top of the income level in Texas to pay their fair share.

I had a discussion with a fellow Democrat this week and as we talked it became clear that they believe the number one issue facing our country is inequality.  I’m in complete agreement.  This is an issue I’ve posted on many times, and it’s clear that nothing is going to change until the people have had enough.  And that hasn’t happened yet.

Until that does change little, if anything, can be done.  And if may take a full economic meltdown, another Great Depression, before there’s enough public outrage to get things changed.  Democrats in Williamson County and throughout Texas find it hard to see the light at the end of the tunnel.   The only solace is that change, when it comes, can come quickly once the situation changes, (see Egypt, Libya, etc..).

We had a thriving middle class once in this country.  It drove our economy to unprecedented economic growth and equality.   Our public and higher education systems were the envy of the world.  We the people, government research and development, put a man on the moon, and created the internet.  Today the commons have been corporatized, public territory ceded to profit first organizations, the middle class is in a shambles, while inequality and poverty increase at levels not seen in decades.

Too many Americans have been tricked into believing that the government can no longer help them and their families.  Until enough people realize that as a lie, take back the government, and use it to bring economic equality back we will continue in this depression.  It’s the inequality stupid.

Further Reading:
CPPP on Inequality, How Texas Measures Up in the 2010 American Community Survey.
Texas Near top in U.S. in income inequality.
The Next New Deal.

Permalink