An Income Tax in Sheep's Clothing

The American Enterprise Magazine ^ | 3/11/05 | Tara Ross

[anymouse]

The "conservative" Texas state legislature is on the verge of throwing away years of hard work. A new Texas state income tax--in disguise--looms on the horizon.

Two years ago, state Republican officials were faced with a $10 billion budget deficit. Despite intense and unrelenting pressure from special interest groups, Texas legislators successfully balanced the budget with reduced spending rather than increased taxes. They did something that politicians rarely do: They stood firm for small government principles. They refused to cave in to political pressure. They laid the foundation for a strong and healthy economy in the state of Texas.

Republican legislators that year were truly out of the ordinary.

Why, then, has Texas's previously resolute Republican legislature suddenly gone soft? What would cause such staunch legislators to railroad a brand-new and irresponsible tax through the legislature, quickly, before their constituents find out what hit them?

Perhaps a little background information would be helpful for my non-Texan readers.

One specific funding crisis is causing heartburn in the Lone Star State: Texas's school finance system is on the verge of collapse. For years, Texas schools have been funded by a controversial property tax system known as Robin Hood. The system requires wealthier school districts to contribute property tax funds to poorer school districts. Legislators spent the 2004 election cycle promising to get rid of Robin Hood and to reduce property taxes. The proposed one third reduction in school property taxes will cause a loss of about $5.4 billion in education funding statewide.

The $64,000 Question is obvious: How is education to be funded in the future, despite these lost property tax revenues?

Sadly, Republicans in the Texas legislature seem poised to answer the question as if they were big government liberals. They have proposed the creation of a brand-new 1.15 percent payroll tax (to be paid by employers), to cover a portion of the anticipated budget shortfall.

Republicans would make two critical mistakes if they enacted such a plan. First, they would replace a visible property tax with a hidden payroll tax. Moreover, their proposed payroll tax would be nothing but a reverse income tax on Texans--and state income taxes hurt everyone, not just a few wealthy employers.

Special dangers lurk in hidden taxes. Many taxpayers mistakenly believe that they are not sharing the burden of such taxes, and they are thus not diligent in ensuring that legislators keep these tax rates to a minimum. Legislators could likely increase payroll tax rates with no immediate ramifications at the ballot box. A small group of employers would protest, but most voters would never notice the tax hike. By contrast, when highly visible taxes, such as the sales tax, are too high, everyone notices. A hidden payroll tax, once instituted, would be virtually impossible to control or get rid of again. A straightforward state income tax (while a great evil to be avoided, in this author's opinion) would be preferable to the hidden reverse income tax that has been proposed by Republicans in Texas.

And make no mistake. This so-called payroll tax is nothing more than an income tax in sheep's clothing.

The proposed payroll tax is to be paid by employers, but the item to be taxed is the work performed by employees. And it is the employees who will most certainly bear the brunt of such a new tax when the state increases the cost of hiring new individuals.

Employees will bear the brunt of the tax when fewer jobs are available. They will bear the burden of the new tax when pay raises are less generous or don't come at all, and when employee benefits are reduced. Moreover, employees will suffer, along with their employers, when the health of the Texas economy is seriously undermined by its new tax on income.

And I have as yet to start in on Texas' constitutional prohibition against income taxes (unless such taxes are approved by a majority of voters). Doesn't this proposed "payroll" tax seem just a bit like an end-run around that constitutional protection?

Texas Governor Rick Perry is up for re-election next year. Rumors abound that Senator Kay Bailey Hutchison may return to the state to challenge him in the Republican primary. If Governor Perry really wants to win this (likely) primary challenge, the last thing that he needs on his hands is a demotivated conservative base.

And Texas conservatives will most certainly be furious with a governor who approves and signs into law an income tax of any kind.

Tara Ross is a regular columnist for TAEmag.com and the author of Enlightened Democracy: The Case for the Electoral College.

[anymouse]

Watch your wallets fellow Texas FReepers, the TX Legislature is up to no good.

[anymouse]

Texas ping

[satchmodog9]

This country has gotten out of hand. Out of control social spending and pork plus the mammoth growth of government and its powers threaten to undermine the American way of life. I am starting to believe some of my conspiracy kook friends.

[nothingnew]

I have updated my FMCDH (From My Cold Dead Hands) sign-off with the addition of (BITS).....Blood In The Streets, which I foresee coming soon, due to the enormous increase of the Marxist progressive movement being shoved down the throat of this failing REPUBLIC through the Judicial tyranny of fiat law, the passing of unconstitutional laws by the Legislative and Executive branches of our government and the enormous tax burden placed upon the average American to support unconstitutional programs put forth by Marxist ideology.

FMCDH(BITS)

[nothingnew]

I am starting to believe some of my conspiracy kook friends.

It's not really "conspiracy", it's just what is happening. See my #4 and tell me you disagree.

FMCDH(BITS)

[peyton randolph]

Perry is a dead duck in the GOP primary if he signs off on this tax.

[kpp_kpp]

not to worry... it will fail shortly on it's own. via bankruptcy. japan and china aren't going to be willing to carry us for much longer and when the debt collectors come calling it'll all be over quickly.

there is no conspiracy, it's called reality.

[weaponeer]

Can someone explain how this would work for Federal employees working in Texas, say at Fort Hood? My paycheck comes from the Fed Gov't. While they will normally withhold a state's income tax, I can't see them just up and paying Texas 1.15% of all Fed salaries in Texas. So what if the Feds tell TX to shove it? How can they collect from the Fed?

Same with an employee working for a company that doesn't have a legal entity in TX. How will TX force a company in NY to pay it's payroll tax?

[satchmodog9]

I agree with you that we are well on our way down that road. The media and the government will marginalize us as kooks as soon as we protest too loudly. Most of America is too selfish or stupid to care about the real direction of our republic. We are being sold down the river by our governments and our corporations at an accelerated rate. Our courts are not stopping them. Wait until the LOST treaty gets slipped through the senate. Bush has already stated he would sign it. NWO.

[MeekOneGOP]

An Income Tax in Sheep's Clothing

Excerpt:

The "conservative" Texas state legislature is on the verge of throwing away years of hard work. A new Texas state income tax--in disguise--looms on the horizon.

Two years ago, state Republican officials were faced with a $10 billion budget deficit. Despite intense and unrelenting pressure from special interest groups, Texas legislators successfully balanced the budget with reduced spending rather than increased taxes. They did something that politicians rarely do: They stood firm for small government principles. They refused to cave in to political pressure. They laid the foundation for a strong and healthy economy in the state of Texas.

Republican legislators that year were truly out of the ordinary.

Why, then, has Texas's previously resolute Republican legislature suddenly gone soft? What would cause such staunch legislators to railroad a brand-new and irresponsible tax through the legislature, quickly, before their constituents find out what hit them?

Perhaps a little background information would be helpful for my non-Texan readers.

One specific funding crisis is causing heartburn in the Lone Star State: Texas's school finance system is on the verge of collapse. For years, Texas schools have been funded by a controversial property tax system known as Robin Hood. The system requires wealthier school districts to contribute property tax funds to poorer school districts. Legislators spent the 2004 election cycle promising to get rid of Robin Hood and to reduce property taxes. The proposed one third reduction in school property taxes will cause a loss of about $5.4 billion in education funding statewide.

The $64,000 Question is obvious: How is education to be funded in the future, despite these lost property tax revenues?

Sadly, Republicans in the Texas legislature seem poised to answer the question as if they were big government liberals. They have proposed the creation of a brand-new 1.15 percent payroll tax (to be paid by employers), to cover a portion of the anticipated budget shortfall.

Please let me know if you want ON or OFF my Texas ping list!. . .don't be shy.
No, you don't HAVE to be a Texan to get on this list!

[nothingnew]

The courts are responsible for much of the violence we are witnessing today. I don't mean the hardened criminal type. I mean the "average Joe" who gets raped by a activist judge and, well, just loses it. There was a judge in Cortez CO, just up the road from me, who was blown away by a guy that the judge stripped of all his property and most of his future income in a divorce settlement. This is just a local thing remember, just a divorce decision...imagine what will start happening when property is siezed unconstitutionally at the rate it is going on right now. Decent lawabiding people are seeing their lives stolen by the "gubbmint", and I don't see it slowing down.

FReegards, FMCDH(BITS)

[Smartaleck]

btt.....good find Anymouse. This needs to be forwarded to every dunderhead in Austin.

[satchmodog9]

Most people won't care unless it happens to them.

[Dog Gone]

While I don't like this tax, it's not an income tax, and it's dumb to call it one. It's an assessment on businesses using employees as the measuring stick. It has the same effect on businesses as a tax per desk or per square foot of carpet.

It gives employers an incentive to get rid of employees instead of desks, but you really have to be smoking something to call it an income tax.

[deport]

How will TX force a company in NY to pay it's payroll tax?

---

I haven't read the bill in detail but I suspect governmental agencies, etc will be exempt from this tax... Maybe someone that has read it can tell us.

They collect fees/taxes/etc from out of state companies currently.... If they don't pay then the State can without permits, etc. or go to court.

[Principled]

From the article:

---

Sadly, Republicans in the Texas legislature seem poised to answer the question as if they were big government liberals. They have proposed the creation of a brand-new 1.15 percent payroll tax (to be paid by employers), to cover a portion of the anticipated budget shortfall.

Republicans would make two critical mistakes if they enacted such a plan. First, they would replace a visible property tax with a hidden payroll tax. Moreover, their proposed payroll tax would be nothing but a reverse income tax on Texans--and state income taxes hurt everyone, not just a few wealthy employers.

Special dangers lurk in hidden taxes. Many taxpayers mistakenly believe that they are not sharing the burden of such taxes, and they are thus not diligent in ensuring that legislators keep these tax rates to a minimum.

---

Seems this writer gets it. Hidden taxes are BAD.

[Principled]

It gives employers an incentive to get rid of employees instead of desks, but you really have to be smoking something to call it an income tax.

Will companies reduce wages by this amount - or will they raise prices by this amount? Either way, the individual worker pays the tax in lower wages or the individual consumer pays the tax in higher prices... or some combination.... just the same outcomes as our employer "contribution" payroll tax.

Indeed, it's the same outcomes as our income tax - higher prices due to hidden tax costs AND lower wages due to tax costs.

[Smartaleck]

"it's not an income tax, and it's dumb to call it one."

I suppose, technically, you don't pay an income tax either. The IRS takes payroll taxes from your employer and then they tell you how much money you didn't receive.

Payroll to your employer and income to you are different sides of the same coin. No?

I do agree though, the income tax title is a bit of hyperbole.

[nothingnew]

Most people won't care unless it happens to them.

This is true, but through my life experience, when the camel's nose is in the tent, the rest follows. The powers that be are pushing the envelope to the extreme, and it will start affecting the majority...sooner, rather than later, is my belief.

We'll see, if I live long enough.

I need to point out that I do not encourage bloody rebellion. It's just something I see coming soon. Right now there is a more effective battle that can be supported. It involves the taxation structure and is peaceful.

FReepmail iof you wish to hear anymore about it.

FReegards,

FMCDH(BITS)

[Puddleglum]

Why don't they charge students some pittane to attend school? If people don't pay something for what they get, they don't respect it - much like public housing. "Free" things from the government deteriorate rapidly.

Also lower the salaries of all public school administrators by 50%.

Oh, and don't give free education to any illegal aliens.