Last week’s release of the 2015 Tax Exemption and Tax Incidence report by the Comptroller’s office is great reminder that Texas tax system is in dire need of a little spring-cleaning. The report reveals the unfairness of our tax system, since low-and moderate-income Texas households bear a disproportionate share of state and local taxes. The unfairness of our tax system sounds all too familiar.
As shown in the graph below, households with income less than $34,161 pay almost four times as much in taxes as a percentage of income, than households with income over $147,411. Which means that the Texas households that are least able to afford it pay more in taxes as a percentage of their income, than the Texas households that could easily afford to pay more.
Despite the overall unfairness of our tax system, the unfairness of different taxes varies significantly. That’s why the Suits Index, which measures the fairness of a tax system by mathematically comparing the percentage of taxes paid and the percentage of total income received for each taxpayer, is a fitting measure to compare the unfairness (or regressivity) of individual taxes. As shown in the table below, the oil production tax is actually the fairest tax paid by Texans; whereas, the cigarette tax is the least fair. The table also shows that the sales tax, which accounts for over half of all state tax revenue, happens to be one of the most unfair taxes as well.
|Tax||Suits Index (Least unfair to most unfair)|
|Oil Production Tax||-0.052|
|School Property Tax||-0.084|
|Motor Vehicle Sales Tax||-0.202|
Bottom-line, this report reveals that Texas households with the ability to pay more in taxes as a percentage of their income do not pay more – making our tax system exceedingly unfair and inadequate.
More detailed analysis is available in our policy paper.