Taxation

Any government relies on a variety of taxes in order to make revenue to spend on public services. There are different types of taxes:

1. Income tax– taxes collected from an individual’s income (There is no state income tax in Texas);
2. General sales tax– based on taxes collected from retail prices of items;
3. Excise tax– taxes collected on specific products such as tobacco and gasoline;
4. Ad valorem tax– taxes based according to the value of the property.

The federal government’s number one tax source for revenue is income tax- The 16th Amendment of the United States Constitution authorized an income tax. The state of Texas’ main revenue source are from sales tax. Article 8 of the Texas Constitution describes the “Taxation and Revenue” specifics. Local governments heavily rely on property taxes as their main source of tax revenue.^[1]

Other Revenue Sources

There are also other tax revenue sources that the state of Texas receives from various sources such as:

• Federal grants in aid– these types of funds come from the federal government to aid state or local governments, and sometimes require matching monies from the receiving government and/or are to be used for a specific use.
• Borrowing– The Texas Constitution does allow for the state or local governments to borrow funds through bonds. There are two types of bonds:
  • General-obligation bonds: Bonds repaid from taxes, usually approved by taxpayers through vote;
  • Revenue bonds: Typically paid through the revenue made from the projects created by the bond i.e. sports facilities, public college dorms.^[2]
• Economic Stabilization Fund– The “Rainy Day Fund” is a type of savings account for the state of Texas. Since 1990, any surplus from previous budget cycles, and collections from oil and gas production are deposited in to this account- the Texas Constitution limits the balance of the Rainy Day Fund to no more than 10% of the general revenue deposited during the preceding budget cycle. At the end of fiscal year 2016, Texas’ Rainy Day Fund was approximately $9.7 billion dollars. The Texas Constitution authorizes the Legislature to utilize monies from the Rainy Day Fund for a budget deficit, projected revenue shortfall, or any other purpose they choose.
  • “Appropriations for the first two circumstances require approval by three-fifths of the Legislature, while a general-purpose appropriation needs a two-thirds majority for passage. The Legislature has made seven appropriations totaling $10.6 billion from the ESF since its inception, most recently in 2013. All were approved by two-thirds votes. The purposes for these appropriations have included water projects, disaster relief, public education, economic development and health and human services. Only one appropriation—$3.2 billion in 2011, representing 34 percent of the fund balance at that time—was made to cover a budget gap (for fiscal 2011).”^[3]

Texas Revenue

The tax revenue of Texas for 2016-2017 biennium ^[4]

The estimated total state revenue for the 2016-2017 biennium is $214 billion dollars. The percentage breakdown for certain line items is: 34% will come from federal funds; 28% will be derived from sales taxes; 8% from licenses, fees, fines and penalties; 2.4% from cigarette, tobacco, and alcohol taxes; and 1.8% from the lottery.