A tax refers to a compulsory payment made by an individual or an organization to the public. The tax system in Texas is regressive. A regressive tax system is a tax levied in such a way that there is a reduction in the tax rate as the amount that is subject to taxation increases. In terms of personal income and wealth, regressive tax levies a higher burden on the poor compared to the rich (Wisegeek 2). These taxes tend to lower the tax incidence of individuals with a higher ability to pay, as they shift the incidence disproportionately to individuals with a low capability to pay.
Texas is categorized among the low-tax state. Additionally, it does not levy a personal income tax (Apps.Irs.Gov 1). There are various sources of revenue for Texas for instance sales tax that represents the biggest part of the collected revenue, contributing 15.42 billion dollars and accounting for more than 55% of the total taxes. Other sources of income include vehicle/rental/housing sales, motor fuels that account for 2.92 billion dollars, franchises, and insurance occupations that account for 1.84 and 1.18 billion dollars respectively (Texastransparency.Org 1). Most of the government income comes from other sources other than state taxes. The largest portion of state government portion comes from the federal government for funding of programs like healthcare, education, and transportation. The second key source of non-tax income and the third significant among all sources is state penalties, permits, fees, licenses, and fines.
Advantages of a Regressive Tax System
Regressive taxes are fair. This is because any individual who buys a specific item that is taxable pays a similar amount. Secondly, they promote attractive economic behavior. Excise taxes for instance those levied on alcohol and cigarettes are intended to have an effect on behavior, and these taxes may reduce the consumption of goods and services (Texas 1). In this situation, they can be used to advise individuals to stay away from dangerous behavior, but encourage savings.
Disadvantages of Regressive taxes
It is an unfair method of taxation because the incidence of tax is on the poor. The reduction in the tax burden is associated with an increase in income (Bassett 2). Another argument against these taxes is that it is aimed at maintaining a strong middle class. Supporters of this argument argue that a good tax policy should enable the middle class to rise and make it very difficult for them to become rich. They believe that a regressive system results in an opposite condition. A regressive tax is unproductive this is because it is taxed on low costly commodities and they are highly consumed by low-income earners (Texas 1). This can discourage investors from producing such commodities because they will make low profits.
If I were a tax legislator in Texas, I would propose a progressive tax system. This tax system takes a large percentage of the high-income earners as compared with the low-income earners. This would be fair to the low-income individual because these taxes can majorly be used to fund several social programs that can be of great help to individuals who earn less money (Apps.Irs.Gov 2). This tax would be of great significance, for instance, it would reduce disparities in income. This may work in situations where the funds are used for social safety nets or for transfer payments.
Texastransparency.Org. Revenue by Source – Texas Transparency, 2014. Web. 13 Apr 2014. <http://www.texastransparency.org/State_Finance/Budget_Finance/Reports/Revenue_by_Source/>.
Wisegeek. What Are the Pros and Cons of a Regressive Tax? (with pictures). Pros and Cons of a Regressive Tax, 2014. Web. 14 Apr 2014. <http://www.wisegeek.org/what-are-the-pros-and-cons-of-a-regressive-tax.htm>.
Texas. Texas. Tax Foundation.org, 2014. Web. 14 Apr 2014. <http://taxfoundation.org/state-tax-climate/texas>.
Apps.Irs.Gov. Understanding Taxes – Theme 3: Fairness in Taxes – Lesson 3: Progressive Taxes. A Progressive Tax, 2014. Web. 14 Apr 2014. <http://apps.irs.gov/app/understandingTaxes/student/whys_thm03_les03.jsp>.
Bassett, Laura. Gov. Rick Perry’s Texas Tax System Heavily Burdens Poor Residents. The Huffington Post, 2014. Web. 14 Apr 2014. <http://www.huffingtonpost.com/2011/08/19/rick-perry-texas-tax-system_n_931623.html>.