“A nice state with medium-to-high taxes” is how pollster David Hill recently described Texas. Contrary to the state’s reputation as a domestic tax haven, Hill claims, in reality Texas’ tax burden is nothing to write home about.
To a certain degree, Hill is right. But step back and you quickly realize that most states have it a lot worse than Texas.
Taxes don’t cease to exist the moment you step foot on Texas soil. Although there is no state income tax, various other forms of revenue generation exist in Texas that quickly dispel the myth that the state is some sort of tax-free mecca. But after looking at overall spending and revenue levels, Hill’s assertion that Texas taxes and spends as much as anyone sounds pretty far off-base.
Both sales and property taxes are significant in Texas. Combined state and local sales taxes averaged 8.14 percent last year, while the median property tax rate of 1.84 percent was the country’s 3rd-highest (yet only 12-highest as a percentage of income due to low property values). Together, these taxes make up 73% of total revenue in Texas, the 2nd-highest proportion in the nation. When you look at the big picture, however, Texas still maintains one of the nation’s lightest tax burdens.
According to the nonpartisan Tax Foundation, Texas’ combined state and local tax burden is 7.9 percent of income (45th nationally), considerably lower than the national average of 9.8 percent. No other major state comes close.
Even more laudable is Texas’ per-capita expenditures. Per-resident, the state spends just $3,630, the lowest level in the nation. New York, a state with a similarly sized population, spends over $6,000 per person annually, while Alaska, the country’s most generous state, spent nearly $20,000 on each resident in 2009. Low per-capita spending shields states from unrecoverable debt and lessens financial demands on taxpayers and businesses, encouraging economic growth and promoting employment.
David Hill is correct to believe some taxes in Texas are too high. “Charging 8 percent or more” in sales taxes probably wouldn’t be considered taxpayer-friendly, but neither would California’s 11 percent top income tax rate or Illinois’ 11.5 percent combined sales tax rate. It might be fun to pick on Texas, but if Hill was being objective in his critique of state tax burdens, he would have started with one of the 44 higher-taxed states.