Don’t Rush New Taxes in Texas

With just days left in the legislative session and deadlines looming, some of our state’s well-meaning leaders are rushing to increase taxes.

As one example, within the last few weeks two State Senators called for an increase in taxes that Texans pay on cigarettes. They assert that the money is needed to fund key state programs and that higher taxes on cigarettes are sure to raise additional funds for the state treasury. Continuing the drumbeat, this week Comptroller Carole Keeton Strayhorn recommended that the Texas Legislature pass a $1 per pack cigarette tax increase to help balance the state budget.

Tax proposals like this one under consideration in Austin will hurt taxpayers across the state and harm our economy. To his credit, Governor Perry has publicly opposed the suggested increase in the state’s cigarette excise tax, indicating that the Legislature should balance the budget without having to resort to such a measure.

The Legislature should now join the governor and say “no thanks” to any tax increase proposal. Before we succumb to these emotional appeals for more hard-earned tax money, we need to consider the Texas taxpayers who are also sitting at their kitchen tables struggling to balance their family budgets.

First, we need to recognize that the size of government is growing proportionate to the demands citizens place on it. And a small segment of the population is demanding more of government. The Texas budget has grown more than 360 percent over the past 20 years while state population has increased less than 40 percent and the Consumer Price Index (which is nothing more than a measure of our purchasing power plus population) has increased only 120 percent. From these figures, it is clear state spending is outpacing all other economic benchmarks.

The Legislature should also examine closely the notion that higher taxes – including cigarette taxes – automatically correlates to increased state revenues. History and logic suggests that higher taxes often discourage compliance, encourage tax avoidance, and lead to less tax revenue.

On top of this, at 41 cents, Texas’ tax rates for cigarettes are already higher than those of our neighboring states. If the Texas tobacco tax is increased to $1.41, consumers along the borders would buy these products in Louisiana which has a 35 cent tax; Arkansas with a 34 cent tax; Oklahoma with a 23 cent tax or New Mexico with their 21 cent tobacco tax? Higher rates in Texas would certainly increase incentive to do so. That means rather than bringing more money to Austin, higher tax rates would likely mean more money for the state treasuries in Baton Rouge, Little Rock, Oklahoma City and Santa Fe.

A tax increase of this level may also produce a black market for cigarettes. Given Texas’s tax burden relative to other states and our proximity to Mexico, an increase will not only drive business out of Texas but may spawn illegal activity.

A cigarette tax is also regressive, hitting middle and low income Texans the hardest. Taxes like this hit those least able to afford it with the harshest tax penalties. It is tough going in Austin to balance the budget gap without raising taxes. But Texas families are facing that same challenge.

Given all of this, a call for higher state taxes simply doesn’t add up.

We are encouraging legislators to follow Governor Perry’s lead and think twice before asking Texans for more tax money.