With a projected budget shortfall of several billion dollars looming over next session, some have begun calling for the creation of a new state personal income tax as a way to help solve the state’s budget mess and aid economic recovery. But as the Foundation has argued in the past, a personal income tax would do more harm than good.
First, creating a new revenue stream would shift the focus away from the state’s real budget problem: government spending. With state government spending having increased by 81 percent since 2000 – compared to just a 43 percent growth in population plus inflation – it is hard to argue that the state lacks revenue.
Next, and perhaps most importantly, much of Texas’ past economic success has been based on the state’s commitment to a low-tax, business-friendly environment that attracts employers, creates jobs, and encourages investment. A state income tax puts that success in jeopardy.
As noted in the Foundation’s previous research, economic growth in the nine states without an income tax has greatly exceeded economic growth in the nine states with the highest marginal income tax rates over a 10 year period.
Finally, the creation of a broad-based personal income tax lets policymakers off the hook and shifts the burden to workers and their families. At a time when most Texans are making cuts to their family budgets, policymakers should be leading by example and making the same kind of tough decisions.
– Katy HawkinsIntern, Center for Fiscal Policy