Daily Archives: December 25, 2014

Taxes in Texas

Writing in the LA Times, Michael Hiltzik wonders what the economic impact of falling oil prices will be in the Lone Star State. Predicting the future is hard, so who knows, but there’s a nice graphic in the article comparing state and local tax burden on different income groups.

Despite having relatively high sales taxes and low property taxes due to Proposition 13, both regressive policies, California’s state and local tax burden is lower on the bottom 60% of income earners. California taxes high income earners at a higher rate, resulting in a tax structure that’s at least marginally more progressive (or really, just less regressive) than that in Texas.

That’s nice, but the impact of a few percentage points of tax burden is offset by the higher cost of housing in California, probably by an order of magnitude. You might pay a little more in taxes in Texas if you’re poor, but you’ll pay much less for housing – so much less that you’ll still come out ahead. California’s more generous social programs, like wider Medicaid coverage, don’t seem so generous if you consider the additional cost of housing as functionally equivalent to a tax or premium required to access those programs.

Since, in general, rents and mortgages are paid by people with less money to people with more money, California’s high cost of housing is similar to a tax transfer from lower income people to higher income people. And make no mistake, this is a voluntary policy. While tony locales like Malibu and Beverly Hills might never be very affordable, there’s no reason for new construction in, say, Ontario or Arleta, to be much more expensive than Houston or Frisco. California’s seismic and energy codes probably make construction marginally more expensive, but this should simply be reflected by slightly higher prices and slightly smaller housing units, which we don’t see.

California’s complicated tax structure causes other regressive effects. For example, Adelanto has few options to try to shore up its tax books, so it’s trying to expand prisons in the city and charge other jurisdictions a per prisoner fee for use. This creates a political constituency that benefits from increasing incarceration rates, the social and economic costs of which will be borne disproportionately by minority and low income communities.

Texas may not be a paradise for the poor. If history is any guide, they will slash school and social program funding rather than increase taxes or use rainy day funds. But California’s progressive rhetoric rings hollow when you take a closer look, and the Golden State would need to implement many reforms before it could say it treats poor people fairly and creates opportunity for them to improve their lives.