The Texas-based Center for Public Policy Priorities (CPPP) released a report this week that explains how enacting a state income tax could actually lower taxes overall for most Texans and at the same time improve public education. The vast majority of states already have an income tax, but those few states still lacking this important revenue source (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Washington, and Wyoming) would do well to study this report carefully.
The report provides details on how an income tax could provide sufficient revenues to simultaneously slash property taxes and boost education funding. Under the income tax the CPPP proposes (modeled on the fairly typical income tax used in Kansas) most Texans, including the middle-class, would see a net tax cut. This finding runs contrary to what many casual observers would expect. Failing to levy an income tax does not mean that a state has "low taxes" -- it only means the state emphasizes different taxes. Sales and property taxes are both above the national average in Texas -- adding an income tax to the mix would provide a fair and sustainable revenue source that could be used to reduce reliance on these taxes.
The report also notes that an income tax could help to free Texas from the dubious distinction of having one of the most regressive tax systems in the entire nation... a problem common among those states lacking an income tax.
Additional data contained in the report helps explain how an income tax could contribute to a more sustainable tax system. Property values and taxable sales have both been growing more slowly than the incomes with which Texans pay taxes. Linking state revenues to the growth of income (via an income tax) would provide Texas with a much more reliable tax system.
And as if all this weren't enough, estimates from ITEP indicate that $2.2 billion of the new income tax (approximately 10% of the tax) would be essentially paid for by the federal government in the form of federal income tax deductions for state income taxes paid.
The only catch is getting Texas voters to understand what an income tax would mean for them. Fortunately, there is some reason for optimism on this front: a poll conducted in 2003 showed nearly 50% support for a state income tax in Texas. Hopefully, reports such as this can help inch that figure even higher.