02 August 2007

Tired of Sales Tax, Anyone?

The taxing system in Texas favors people with more money and penalizes those with less money.
Most of the tax revenue in Texas comes from Sales Tax. Sales Tax is a tax fee that is added to many consumer products, and the money from that fee goes to the Texas government. We have all experienced this type of tax. Ever see a 99-cent value meal? The annoying 7 cents that make you have to give a dollar bill and some coins are the sales tax.
Since low-income taxpayers buy consumer products as do high-income taxpayers, both end up paying about the same amount of tax money. However, when you divide the amount of sales tax by the income of each taxpayer, the percentage for the lower income taxpayer will be significantly higher than that of the high-income taxpayer. The trend that lower income families pay higher percentage of their income to taxes is called a regressive tax system.
The federal tax system, which is an income tax, is a progressive tax system. In a progressive tax system, higher income brackets pay a higher percentage of their income to taxes. This kind of system sounds more logical, since more money can be raised this way.
For example, lets take a family that earns $10,000 a year. Have them pay 10% of their sales tax a year – that’s $1000 / year. A family that earns $100,000 a year will maybe pay 2% of their income on sales tax, or $2000 / year, this is still more than the low income family, even though the percentage is lower. Say there are 12 low income families for every 1 high income family, this would bring the total revenue to 12 x $1000 + 1 x $2000 = $14,000
If we would use the income tax, to get the same amount of money, we could tax the $10,000 income families 4% and the $100,000 family 9.2%. This would still give us the same $14,000. This way, the high-income family would still pay a smaller percentage than the low-income family was paying originally, and for the low-income family, the extra $600 that comes from reducing 10% to 4% would be very valuable.
This was a hypothetical example and is for illustrative purposes only, but we can see how the income tax system could work, after all, this is how it is done in the federal level.
Fixing the tax system in Texas would involve a great reform and nobody would be happy to start paying income tax after so many years with out it. When you think about it, though, don’t you hate sales tax? Doesn’t it seem better than paying $1.07 for a $0.99 meal?