Sharing the Burden of Taxation
by Senator Craig Estes
In 1776, American colonists put pen to paper to dissolve the political ties which bound them to the British Empire and King George III. One of the central issues behind this dissolution was the King's insistence upon taxing the colonies with no representation in the Parliament. Thus, "no taxation without representation" became a cornerstone in the foundation of America's political freedom from Europe.
Today a new mantra may be raised, "equal taxation for equal representation." That is the cry that should be rising up from Texans. Because of inequities within the federal tax code, Texans pay an estimated $700 million a year in additional federal income taxes. We pay more in federal income taxes but get the same level of representation as those who pay less. And why do others pay less? Because the federal tax code punishes states that finance their government without burdensome state income taxes.
The Tax Reform Act of 1986, meant to simplify and streamline the Federal Tax Code, eliminated the state and local sales tax deduction. Before the 1986 Tax Reform Act was passed, taxpayers were allowed to deduct both their state and local income and sales taxes. Since nine states including Texas do not have a state income tax, the sales tax deduction was the primary deduction for state taxes. After passage of the Tax Reform Act, the state income and property tax deductions remained. Thus, taxpayers in nine non-state income tax states pay higher federal income taxes because of the lost deduction.
So, what is the solution? Right now there is bipartisan legislation before Congress aimed at restoring the sales tax deduction giving taxpayers the option to deduct either their state income taxes or the sales taxes from their federal taxes. One of the plans before Congress would set up an estimated sales tax table from which Texans could calculate their sales tax deduction and spare taxpayers from having to save every receipt from every purchase.
Opponents cite two main objections. First, the federal budget cannot afford the restoration of this deduction. And, second, only those who itemize their income tax returns would see the benefits of the plan. To the first objection my response is simple: Texans can no longer afford to be without this deduction. On the second argument, I would remind the opponents to this plan that most taxpayers put up with the paperwork of itemizing their returns to take advantage of the available deductions. Give Texans the sales tax deduction they rightly deserve, and Texans may find a reason to itemize their federal returns. It is no coincidence that Texas falls below average on the number of households itemizing their federal tax returns.
Despite the obvious inequity of the situation, the reasons for righting this wrong go well beyond the philosophy of tax fairness, although I believe that is reason enough. This tax situation also hurts Texans in terms of investment and job growth. According to a March 2002 Special Report by the State Comptroller's Office, allowing Texans to keep the $700 million taken from Texas in federal income taxes would result in nearly $590 million in new Texas investment and create nearly 16,000 jobs for our economy. Additionally, the increased economic activity created by such legislation would add nearly $66.5 million in revenue-related sales tax receipts over the next three years.
In practical terms, restoring the sales tax deduction would save the average household, itemizing federal income taxes, nearly $284 on their 2002 income taxes. In fact, under one deduction plan, a family of four with a total household adjusted gross income of $30,000 could deduct up to $590 from their federal income taxes, while a single mother with two children and an adjusted household income of $20,000 could deduct up to $446.
All those seeking its comforts and protections should share the burden of government, and Texans are willing to pay our fair share of the burden of federal government. However, we are no longer willing to pay more than our share. That is why I am joining the State Comptroller in her request that Congress correct this situation and I have filed Senate Concurrent Resolution 1 in the Texas Senate to call on the United States Congress to restore the state and local sales tax deductions to the Federal Tax Code and bring us closer to basic tax fairness.
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Note: The above op-ed column is a follow-up to the Jan. 10 press release on Senator Estes filing Senate Concurrent Resolution 1 for consideration during the 78th Texas Legislature.