If Congress allows the Bush-era tax cuts to expire at the end of the year, states that rely heavily on sales tax revenue-read: Texas-could see a significant revenue decrease in the months and years to come, according to the latest report from the Tax Foundation.
That is because a federal tax increase, in the form of higher marginal tax rates and a return of the estate tax, is all but certain to leave consumers with less after-tax income to spend on “nonessential” goods and services such as entertainment, restaurants, and the like. Since Texas’ state and local sales tax is typically applied to nonessential goods and services, as opposed to necessities like food and medicine, fewer tax dollars are likely to be collected as consumer spending drops.
All of this could mean additional budget woes for the state and local governments at a time when many of them are already scratching their heads wondering how to cope with the challenges they have in front of them.
– Talmadge Heflin