Texas and Taxes

Texas is booming! More jobs are created in the Lone Star State than in any other state in the Union. Texas also boasts Rick Perry who, for better or worse (probably worse), is the leading Republican candidate for President at this time. However, the "Texas Miracle" is slightly tarnished. You see, Texas implemented a gross receipts tax (a tax on revenue regardless of whether your company makes a profit). They call it a margins tax because it has certain exemptions unlike a traditional gross receipts tax. In other words it has none of the advantages of a gross receipts tax (simplicity) and all of the disadvantages of a corporate income tax (it is complex, unpredictable and unstable).

Tax and spend liberals are taking notice. John Oceguera and Steven Horsford (both leading Nevada Democrats) want to copy this tax and impose it on Nevada.

David McGrath Schwartz over at the Las Vegas Sun writes,

A favorite tax of Nevada liberals and pro-revenue business executives — a “margin tax” — is patterned after one passed by Texas lawmakers with the conservative Republican’s support. 

Opponents of such a tax in Nevada — conservative Republicans most likely to support Perry — could be forced into pretzellike contortions: supporting Perry, while railing that a tax like he helped adopt in Texas would kill jobs in Nevada.

David thinks it would be contradictory to support Rick Perry and point to the State of Texas while also opposing the gross receipts tax proposed by Horsford and Oceguera.

Not so fast David; it's time to put your thinking cap on!

David, like many other tax and spend advocates journalists, isn't looking at the big picture. He simply sees A) Texas raised taxes B) Texas created a gross receipts tax and C) Texas has the fastest growing economy in the nation. David therefore concludes that anyone who opposes tax increases as a job killer must therefore be wrong or contradicting themselves.

This isn't deep thinking.

David is simply looking at one tax and forgetting about all the rest (this is a consistent problem with Nevada journalists). Importantly, he's forgetting to look at how many tax dollars the government consumes overall.

To keep things simple lets look at tax collection data from the left-of-center Brookings Institution (please note, Brian Greenspun - David's own boss - is a board member). According to the Brookings Institution, Nevada's total tax collection per capita (that is the total amount of taxes collected from all sources divided by the total number of residents) ranks Nevada 24th in the nation. Texas, on the other hand, ranks 36th!

Nevada collects about $500 more per resident than Texas. So despite the gross receipts tax increase, Texas still has a lower tax burden. In other words, you can attack the Horsford and Oceguera's gross receipts tax plan and celebrate the Texas miracle at the same time.

Just note the major caveat - Texas would PROBABLY be doing even better if they didn't have that gross receipts tax.