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New Tax Report: State Budget Easy to Balance

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May 25, 2011

AUSTIN, Texas - As Texas lawmakers struggle to balance the state's books by cutting public education, health and human services and other popular programs, a new study says there is a simpler and far less painful way to turn deficits into surpluses.

The study released today suggests flipping the state tax structures so that the wealthiest pay the rates low-income wage earners are now paying, and vice versa. That would immediately wipe out Texas' $27 billion budget shortfall, according to report author Karen Kraut, an analyst with United for a Fair Economy, who says Texas has the nation's fifth most regressive tax structure.

"The top 20 percent of taxpayers pay 4.4 percent of their income in state and local taxes, whereas the lowest-income taxpayers pay 12.2 percent of their income in state and local taxes."

Reversing those figures, she says, would raise $72 billion for state coffers. It would require a state income tax, which Kraut acknowledges would be a hard sell politically. However, she thinks Texans would warm to the idea if they learned it would be accompanied by big reductions in property taxes.

Texas wouldn't be alone in benefitting from progressive taxation, the report says. According to Kraut, Inverting tax structures would bring states across the nation $490 billion in new revenues.

"Every single state in the nation has a tax system that is regressive, that taxes the lowest-income families at a greater share of their income than the most wealthy families."

Wealthy people should not fear progressive taxation, she says, because with greater fairness comes greater overall economic stability and growth.

"When low- and middle-income people have more money to spend in the economy, they purchase things, and the economy gets revved up, and the people who own businesses - and the people who invest in the stock market - gain from those economy-enhancing activities."

Today's political culture has contributed to the misperception that the wealthy pay their fair share - if not more - in taxes, Kraut says. She thinks that's because tax debates tend to center on the federal income tax.

"Pretty much every other tax - especially taxes at the state and local level - hit the lower- and middle-income folks a lot harder than the wealthy."

Wealth has been redistributed during the past three decades, Kraut says, because of increasingly regressive tax systems. She says that's one reason that top incomes have soared while lower incomes have stagnated.

The study is online at faireconomy.org.

Peter Malof, Public News Service - TX