TAXATION: LECTURE 10?

taxes! (income, sales, property, severance)

base rate at which something is taxed, the effective tax rate is after deductions and exemptions

the tax base is what is being taxed

% of income paid in taxes

higher income groups pay a larger share (federal and state income taxes)

lower income groups pay a larger share (sales and excise taxes)’

all income groups pay same percentage (tithe or flat tax)

TAX BASE(what is taxed): Personal or corporate income subject to taxation
•May be much lower than total income
•Lowered by deductions, exemptions, etc.
•TAX RATE(base at which something is taxed): Usually progressive
•But some states have proportional income tax
•TAX BURDEN:
•Widely accepted as progressive based on adjusted gross income (AGI)
•Much less progressive when calculated w/ “total income”

TAX BASE: Sales subject to taxation
•e.g. food (not prepared food), medication exempt in TX
•TAX RATE: fixed
•Local example:
•State’s share = 6.25%
•Brazos County sales tax = 0.5%
•College Station sales tax = 1.5%
•TAX BURDEN: Regressive (falls on low income people)

As income increases, differences in purchases don’t increase proportionally
•Therefore,
•Lower-income earners pay out larger % of income in taxes
•Higher-income earners pay out smaller % of income in taxes
•Policies to reduce regressivity include:
•Exemptions on food, medicine, etc.
•“tax holidays”

TAX BASE: Sales of particular items
•Often levied on inelastic goods
•Sometimes also a “sin tax”
•e.g. cigarettes, alcohol, sugar, carbon emissions
•Revenues often earmarked for specific purposes
•TAX RATE: fixed
•TAX BURDEN: Regressive
•More so than general sales tax?

TAX BASE: Property subject to taxation
•E.g. minus homestead exemption, etc.
•TAX RATE: fixed by the mill rate
•Mill rate = dollars per $1000 of assessed value •e.g. $4.29411 per $1000 of value •TX renders as tax per $100 of assessed value, e.g:
•Brazos County: $0.429411 •City of College Station: $0.524613
•CSISD: $1.178100 •TAX BURDEN: Regressive

dollars per $1000 of assessed value

Far less regressive than sales taxes
•Regressive overall
•May even be progressive through limited income ranges in some housing markets
•But…
•High income-earners often don’t own expensive enough property for their tax burden to increase proportionally

Tax structure refers to overall structure of taxation in a state as a whole
•Overall system of taxation can be progressive, regressive, or proportional depending on:
•The types of taxes used
•The rates of those taxes
•Most state tax structures are regressive:
•This means state & local taxes actually worsen inequality!
•Wealth gap after taxes > wealth gap before taxes

•Low state taxes
•NO state income tax
•Unconstitutional as of Nov. 2019!
•NO state corporate income tax but does have a gross receipts tax
•Tax base: net income (instead of net income minus expenses)
•Higher than avg. sales tax
•~60 various other taxes
•High local taxes
•Very high property taxes
•State “pushes” costs to local gov’t

Progressive Features
1.Sales tax base excludes groceries & medicine
2.“Tax free weekend”
•Regressive Features
3.No personal income tax
•Heavy reliance on sales & property taxes
4.No corporate income tax
•Use of (regressive) gross receipts tax
5.Few tax credits for low-income taxpayers to offset regressive taxes

Politics is “who gets what, when, & how”
•Tax structure dictates “who pays what, when & how” for it
•Creates tax policy “winners” & “losers”
•Tax systems can reduce inequality or increase it
•Texas:
•Regularly ranked as one of most tax regressive states
•Low-income residents bear heavier burden in state taxation