Texas Wealth Tax Ban Was a Mistake Other States Shouldn’t Repeat

Texas’ tax code was already tilted in favor of the wealthy and well-connected, and the state’s recent ban on wealth tax legislation will make it harder to unrig that system. This mistake will perpetuate racial wealth inequality and tie lawmakers’ hands when they need to raise revenue to invest in infrastructure or tackle crises in the future.

The ballot initiative, which is the first of its kind in the country, prohibits the Texas legislature from creating a wealth tax based on a person’s total amount of wealth. This puts a fair, equitable tax system further out of reach at a time when Texas—and all states—should be taking steps to address historical inequities that have stripped wealth from many communities of color.

Texas’ tax code is the second most unfair in the US, and the state relies on sales tax and other forms of regressive taxation that fall hardest on those with the least means. Households earning less than about $21,000 pay 13% of their income in taxes on average. The top 1% of households, with income over about $618,000, pay roughly 3% of theirs. Wealthy people also can decide when and if to pay taxes in ways that people who earn wages cannot—for example, by timing when to sell a stock or other financial asset.

The state’s tax code contributes to extreme levels of wealth inequality. The 66 wealthiest billionaires in Texas own more wealth than 70% of Texans combined. The wealthiest 1% of Texas households own $4.9 trillion, nearly half the state’s total wealth. Black and Latino Texans own much less wealth than they should due to historical and ongoing discrimination.

The new prohibition on wealth taxes will make it that much more difficult to ensure that wealthy people pay their fair share for education, health care, public transportation, and other services. The Institute on Taxation and Economic Policy estimates a 2% tax on wealth over $30 million in Texas would generate $33 billion in tax revenue each year. Those funds could have been used to improve Texans’ overall quality of life and make progress on ending racial disparities in many areas of the state’s economy.

The ban is part of a worrying trend in Texas and across the country limiting equitable taxation options that are based on people’s ability to pay and invest in the state’s economy and infrastructure. This year, voters also approved the legislature’s short-sighted plan to cut property taxes in a way that will put education funding at risk if revenues dip. And in 2019, voters approved a ballot initiative to prohibit a state income tax.

These changes collectively put Texas’ future at risk. Revenue is starting to slow, and the state’s 2023 budget surplus won’t be around forever. These changes have made it harder to build better roadways and infrastructure, invest in public education, protect the Gulf Coast from increasingly severe storms, and more. That’s a big concern because highly educated workforces and strong infrastructure drive state economies.

And taxes aren’t a major factor for people moving to a new state. They move for employment opportunities, closer distance to family, more available housing, or better weather, research shows.

Outlawing a wealth tax limits Texas’ potential and does nothing for its residents. States should leave open the possibility to tax wealth to create more resilient and equitable communities.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Samantha Waxman is deputy director of state policy research on the state fiscal policy team at the Center on Budget and Policy Priorities.

We’d love to hear your smart, original take: Write for us.