Instructor's Manual to Accompany:
The World of Texas Politics
Chapter 10: Texas Taxes and Revenue
Outline:
I. A Tale of Texas Taxes and Constitutional Smoke: The tax system in Texas is antiquated, confused, and sometimes unconstitutional.
II. Introduction: Texans hate taxes, but refuse to rationalize the system they have because the current system favors the elites.
III. Economic Overview: Demands for public services are growing, pressures on property taxes as the financial base of public education threaten to break the system, and the tax burden is growing faster than disposable income.
IV. National Revenue Patterns
A. Personal Income Tax: Most progressive of the options.
B. Social Insurance Taxes: Mostly proportional.
C. Corporate Income Tax: May or may not be a good idea.
D. Other National Taxes: Excise taxes based on quantity rather than value.
V. Texas Taxes and Revenue
A. Constitutional Basis of Texas Taxes: poll taxes, property taxes, occupations taxes, and income taxes.
B. State Actors: governor, treasurer, comptroller, Office of State-Federal Relations.
VI. Sources of State Revenue
A. Personal Income Tax: Not! Texans do not want one.
B. Sales Tax: People like it, but it is regressive.
C. Corporate Franchise Taxes: New version taxes profits more heavily than capital investment.
D. Severance Taxes: People in other states help pay for Texas service.
E. Excise and Earmarked Taxes: Lack elasticity and restrict flexibility of government.
F. Insurance, Hotel/Motel Occupancy, Utility, and Inheritance Taxes: Let others pay the bills.
G. Other Taxes: Low yields and high administrative costs.
VII. Criteria For Evaluating The Tax Structure
A. Benefits Received: Let those who use it pay for it.
B. Ability to Pay: Effective Tax Rates – Progressive, Regressive, and Proportional Taxes – How should we define what is fair in taxation?
C. Tax Elasticity: Does it expand and contract along with the state’s economy?
D. Tax Diversity and Stability: Texas hedges its bets by having a variety of taxes.
E. Tax Administration and Compliance: How easy and inexpensive is the tax to administer?
F. Tax Burdens and Economic Distortion: New sources of wealth are not bearing their fair share of the tax burden.
VIII. Other Sources of Revenue
A. Intergovernmental Transfers: Thirty percent of the state budget comes from the national government.
B. Fees, Fines, and Penalties: Raise some money.
C. Public Lands and Mineral Rights: Raise some more money.
D. The Texas Lottery: Raises only about 5% of state revenues.
E. Dividends on Investments: Yields depend heavily upon federal bond yields.
F. Other Sources of Income: Sales and services.
G. Borrowing: General Obligation and Revenue Bonds – Borrowing is good business – sometimes.
IX. Local Government Taxation and Revenue Sources
A. Property Taxes: The major source of revenue for local units.
B. Local-Option Sales Tax and Other Revenue Sources: Sales taxes and service fees.
X. Summary and Conclusion: Tax reform has not reached Texas. The current systems disproportionately burdens low income families and business, and few of any attempts have been made to reform the tax system so it better fits with the way wealth is generated in the state.
XI. The End of the Tale: The courts have almost ruined the Texas franchise tax as a dependable source of revenue, and taxes which are aimed at suppressing drug activity turned out to be unconstitutional.
Summary:
Tax reform was the number one item on the 1997 legislative agenda. State government depends heavily on regressive taxes to fund a minimal level of services. Tax administration has become more costly as revenues have declined, particularly for the sales tax. When tax criteria are used to evaluate the Texas tax system, the state does not measure up very well. Business and poor individuals bear a disproportionate share of the tax burden. The tax system has not always generated adequate revenues and does not tap into much of the new economy of the state which is service based. There are few taxes with high elasticity, so Texas taxes do not generate increased revenues during periods of economic prosperity. The increasing dependence of school districts on the property tax has placed a disproportionate burden on homeowners across the state with taxing outpacing growth in personal income almost every year. Although voters, the business community, and government officials recognize that the present tax system is out of balance, inequitable and inefficient, the state’s political culture does not encourage significant tax reform or change to a more progressive tax structure.
Discussion Topics:
1. Compare the tax structure of Texas with that of other states.
2. Discuss the growth of the lottery and the empirical study of the impact of a lottery on other taxes.
3. Consider the pros and cons of a personal income tax in Texas.
4. Examine the state’s major revenue sources for trends over time and discuss the projections for the future if these long-standing trends continue.
Individual or Small Group Projects:
1. Use the data in the Book of the States and compare the tax structure of selected other states with that of Texas. Examine states of comparable population size, states in the same region, and states among the ten most populous.
2. Have students report on the 1997 legislative debate over reducing property taxes and discuss the final bill the legislature passed.
3. Examine the state’s revenue structure in 1985 and compare the proportion of revenues from each source to those in 1995-1997.
Essay Questions:
1. Discuss the pros and cons of a personal income tax for Texas.
2. Discuss the impact of lottery revenue on total state revenue.
3. What are the advantages and disadvantages of dedicating lottery revenues to education in Texas?
4. Discuss the impact of federal mandates, court orders, economic conditions, and dedicated funds on state revenue.
5. Discuss the sources of local tax revenue and trends in generating local government revenue.
|
