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m70,4 .7 -AI Deep in the Heart of Taxes By David Butts Austin 6 6 AVE YOU taken into account the fact that your tax increases [1cent sales tax and 5-cent gasoline tax] are going to fall more heavily on the poor?” Governor Mark White was asked at a recent capitol press conference. “No, no. No, I think not,” White answered. “I think you will find that in Texas the sales tax, because of the exemptions, is not a regressive tax until it gets up into around the $50,000 income brackets.” White is wrong. And it’s time he got his facts straight on this one. The sales tax eats up between 2 and 4′ percent of your income if you earn less than $10,000 a year. But if you’re one of the $30,000-plus crowd, you contribute only 1.5 percent of your income to the sales tax. That’s what’s called “regressive.” And the same applies to the gasoline tax. For people earning less then $8,000 a year, the gasoline tax takes more than .72 percent of their income. As incomes rise, the tax rate falls; so a person in the $30,000-$35,000 bracket pays only .35 percent, or less than half the rate of a poor consumer. Furthermore, if you add all the state taxes together \(sales, gasoline, tobacco, a whopping 7 to 12 percent of their income while the rich get off with only 3 percent. But this is nothing new. Texas taxes have been regressive since their inception. What is new is an opportunity to change it. Most of the legislators have been pumped so full of the public school blues that they are just about ready to do what they haven’t done for 12 years raise taxes. And when you raise taxes there is a chance to make the structure more fair. White apparently has little interest in that. “Because the exemptions are built in against medicine and food,” White says, “you don’t have the regressive nature David Butts is a Capitol reporter for the Beaumont Enterprise. of the sales tax that you might ordinarily.” The exemptions on food and medicine help, but they don’t make a bad tax good. The poor still pay twoand-a-half times as much as the rich in sales tax. And what about the exemptions White didn’t mention? Not many of the downtrodden benefit from the relief given consumers of architectural services or studio portraits or the long list of other special-interest exemptions. White has a don’t-confuse-me-withthe-facts attitude on the tax equity subject. When he was told of the University of Texas tax experts who documented the regressivity of the sales tax, he flippantly said, “They’re wrong,” sounding a bit like Ronald Reagan on that one. When Reagan was confronted with a study from the Congressional Budget Office that proved his tax cuts benefited the rich and hurt the poor, he responded, “Well, I don’t believe that.” White may play ignorant on the regressive issue, but my hunch is he knows exactly what he is doing. He knows that sales and gasoline taxes are patently regressive, but he believes these taxes have the fewest and weakest opponents. He hopes that, by picking a tax that hurts low-income families the most, the wealthiest and strongest lobbyists won’t object. But White can’t screw up an already unfair tax system by himself. He needs help. Unfortunately help may be on the way. There are legislators out there who know and care even less about regressivity than White. Mark Stiles, D-Beaumont, a member of the House Ways and Means Committee, has discovered the following: “People that have more money spend more money.” And from that basic truth comes the knowledge that the rich pay more sales tax. But don’t the poor pay a higher percentage of their income in sales tax? I asked. “I don’t look at it like that,” Stiles answered. “I don’t think it overburdens the poor.” Well what about the gas tax, Mr. Stiles certainly the poor bear a heavier burden for that one. “No,” Stiles said. “I think the more affluent people live further away from their workplace because they live in the suburbs and they work downtown or at a central location. And the people who are not as affluent live closer to the inner city where they don’t have near as far to travel.” So, obviously, since the affluent have to drive so much further to get to work, the tax is equitable. Stiles says people don’t notice the sales tax, and he is right. This is the tax that evaporates a few pennies here and a few more there. Imagine the difference if the state sent a tax collector around every year, and the guy said, “Hey, you with the $4,000 income, fork over 8 percent, and you with the $30,000, cough up 4 percent.” White is in serious trouble. He needs to pass a tax increase. His reputation as governor is riding on the education reforms he has promised. This special session is his second crack at making good on his promise. If he fails now, he’ll have to wear the “ineffective” label into his next campaign. The prospects for success are looking dimmer all the time. Even a bare-bones package of education reforms \(teacher pay raises and some money for the state around $500 million a year. That’s a $500 million increase for schools when state revenues are dropping and every other state program is being asked to cut back. It was the fear of repeated failure that motivated White to call for increasing a tax that may be relatively easy to pass but bears down hardest on a traditionally Democratic constituency. White’s willingness to sacrifice the lowand middle-income folks to save his promised education reforms is not only disappointing, it’s unnecessary. The variety of tax possibilities open to White include many that are either neutral or progressive in their impact on the poor. Closing sales tax exemptions for luxury services and implementing hazardous waste taxes and lignite taxes are some of the more promising possibilities. These may require more of a fight with the lobbyists than a general sales tax increase, but they would leave us with a more equitable tax structure. L1 THE TEXAS OBSERVER 7