AUSTIN, Texas – While some would like to see the debate over whether taxes are regressive or progressive take center stage in the tax policy debate, it is arguable that there are far more important issues at stake.
Tax incidence – the identification of who is truly impacted by a tax – has been the main focus in the state’s tax debate. But, since all taxes are collected in the context of markets, all taxes have impacts far more complex and difficult to measure than can be determined by the typical regressivity/progressivity analysis, according to a new report by the Texas Public Policy Foundation’s chief economist.
“We must depend on those taxes that do the least harm to our economy,” said Byron Schlomach, Ph.D. “One such tax is the consumption tax but there is a concern that it is regressive. What we cannot easily measure, though, is how supposedly progressive taxes harm the poor by eliminating jobs.”
Schlomach points out that an official state study from the Comptroller’s office indicates that the state’s main business tax-franchise tax-is actually more regressive than the sales tax. “Low income Texans, according to the last four Comptroller studies, pay a higher proportion of the franchise tax than they do the sales tax,” said Schlomach. “Other taxes may be less visible to low income Texans, but they are also likely to be more harmful to low income Texans than the sales tax.”
Schlomach’s report, “Progressive or Regressive, Is That Really the Question?” examines the concept of tax incidence – and its role in the tax policy debate – and suggests that the real emphasis should be tax policy that keeps taxes low and government limited.
“If anything, what tax incidence teaches us is that no tax’s effects can be fully known or anticipated except that the effects are negative,” said Schlomach. “A limited government and the limited, visible taxes to accompany it are the best assurance for unlimited opportunity in the future.”