The paper focuses on evaluating and discussing Texas’ decision not to have a state income tax. The paper will tend to examine relevant arguments such as the reasons for their enactment of the policy, evaluation of the decision, and the impact of the policy. The paper also analyses the performance of income tax-free states and income tax-imposed states and ultimately provides a formative approach based on the interest of equality among the high earners, low earners, property owner, and corporate businesses.
Understandably, taxation is the major revenue collection method considering the amount of money both the federal and state government generate. While taxation is divided into various types of taxes, Internal Revenue Service collects at least $1.3 trillion in every fiscal year from income taxes (Moretti " Wilson, 2017). Tax payment is partially a compulsory citizen’s duty, and therefore, fewer individuals can evade income tax. However, at the state level, Texas is among the seven states in America that income tax is not taxed. Their decision to not tax individual tax sounds oppugnant to the other states and federal regulations regarding. A good number of citizens perceive it is more interesting to live in states like Texas, especially with such policies regarding taxation. However, the prime discussions of this paper regarding Texas' decision not to have a state income tax would focus on how Texas generates its revenue to their prime expectations without an income tax, what attributed to their decision, and the impact of their decision on their state economy.
Collection of taxes accounts for the high percentage of state’s revenue which is necessary to invest in various states projects and payment of government workers as the main purpose of tax collection. Without the income tax, Texas opts to have other sources of revenue that cater for all the expenses that were supposed to be allocated for income tax. Taxes highly depend on property taxes which accounts for at least 1.7% of home values, which is equivalent to $1,560 income per capita. The percentage of revenue generated from property taxes attributes to an average proportion of 31.5% across all the other states (Sommers, Maylone, Nguyen, Blendon " Epstein, 2015). Moreover, the huge benefits from the property taxes indicate that Texas' decision to eliminate income tax has resulted in the high interest of investment within the state. Despite property taxes also relying on sales tax. Both property and sales tax accrue to 40.5% of tax collection within the states.
The statistics mentioned justifying that while many states are focused on individual income as a major source of revenue, the lesser states like Texas depend on the other means of taxes that even yield more revenue to the state. According to reports from the American Legislative Exchange Council, Texas, among lesser states without individual income tax, has determinedly outshined the states with the highest taxes on individual income (Fajgelbaum, Morales, Serrato " Zidar, 2015). Furthermore, their research indicates that Texas is among the states with the highest index in terms of population growth, job creation, and tax revenues. Texas state government claimed that the main purpose of disregarding personal income tax is to become a beacon of growth States like Alaska, Nevada, and Florida recorded a progressive impact on the economic development which was a result of income tax elimination. The amount of job creation in Texas has attracted various persons from other income-taxing states while the state focuses on maintaining a core of their young professional workers investing their professionalism in other states.
Texas' decision not to have a state income tax is in accordance with the overpowering driver of where people opt to move and live. People tend to live where there is an abundance of job opportunities, whereas the state and local taxes are partially minor or sustainable for different households. The public opinion perceives that the government should play a fundamental step in shaping society. This implies that the government should ensure that their policies of revenue generation should favor the interest of the people. Since many citizens have multifarious obligations that hold them accountable, such as maintaining their households and paying taxes. Therefore eliminating personal income tax is an attempt to create an atmosphere that is suitable for the interest of the public. Moreover, the action to overwhelm the drive of people’s interest is actually a formula for developing a hub for investment and development (Moretti " Wilson, 2017). This is because professional workers in Texas are willing to get employed within the government premises and work proficiently since the laws of state government ensure that their income is tax-free.
The ideology of freeing individual income tax is based on improving the life of low-class individuals since the concept relies on corporate companies and property owners who are high-income earners. Income-tax-free states enact high taxes on properties, goods, and services in order to cover for the fact that they do not tax personal income. Unfortunately, not every individual would benefit from living in an income-tax-free state similar to living in states that impose income taxes. While individuals may save much of their earnings, they may spend much on taxes. On the other hand, persons living in income tax-imposed states may save their income depending on various factors such as the amount of income tax.
However, the income and inequality reports suggest elucidating that the mounting income discrepancies will unsympathetically disturb the state tax revenue, whether property, sales, or income tax. The reports admit that the most affected states will be states reliant on sales and property tax as opposed to the state's contingent on personal income tax. States are meant principally to fund public services within the state such as healthcare, education, and infrastructure. The combination of property tax, income tax, and sales tax attributes to the state development growth. As a result, Texas is among the states that are not altruistic due to their disregard for personal income tax. From property and sales taxes, Texas can opt to hike sales and property taxes in order to gain its revenue states (Sommers, Maylone, Nguyen, Blendon " Epstein, 2015). Such a system that focuses on sales and property taxes mainly targets multinationals and the high-class individuals, which is an act of inhumanity. Alternatively, a tax system with zero individual income tax but high income and property taxes in portrait inequality among its citizens.
Tax systems may sound controversial and unequal to a certain extent, and therefore the significant aspect is to ensure a formative approach that does not undermine any class in the society but ensures a balanced approach that is next to equality. For instance, relying on sales and property taxes may sound exploitative, particularly for multinationals and the rich who have ventured much in sales and property. Whereas taxing at least a tenth of every dollar spent to the government may sound punishing to persons earning minimum wages. Therefore the unanswered question remains to be “what is fair in the eyes of American citizens?” High property and sales taxes that shift a huge burden to high-income earners, property owners, and corporate business (Moretti " Wilson, 2017). On the other hand, high-income taxes that shift a burden to low-income earners. The two aspects do not provide a suitable tax model that would ensure equality despite economic growth. Hence, the report proposes the development of a more comprehensive tax structure that would ensure the disparities are well represented and balanced within the tax system.
References
Fajgelbaum, P. D., Morales, E., Serrato, J. C. S., " Zidar, O. M. (2015). State taxes and spatial misallocation (No. w21760). National Bureau of Economic Research.
Moretti, E., " Wilson, D. J. (2017). The effect of state taxes on the geographical location of top earners: evidence from star scientists. American Economic Review, 107(7), 1858-1903.
Sommers, B. D., Maylone, B., Nguyen, K. H., Blendon, R. J., " Epstein, A. M. (2015). The impact of state policies on ACA applications and enrollment among low-income adults in Arkansas, Kentucky, and Texas. Health affairs, 34(6), 1010-1018.
