A new study from Standard & Poor’s suggests that income inequality is leading to lower state tax revenues in Texas. The study also finds inequality weakens overall economic growth, with a stronger effect in states like Texas that depend on sales tax revenues.
Still, the state has seen expanded growth in average tax revenue, the study said – 5.48 percent revenue growth from 2000 to 2009 compared to the 4.07 percent in sales tax-dependent states and 5.25 percent growth in income tax-dependent states.
The credit-rating agency says the growing gap slows potential growth and lowers the growth of the state's overall tax base, which is “stronger and only statistically significant” in sales tax-reliant states. The inequality could prove problematic in future budgeting, as S&P says Texas can’t correct the problem by simply raising taxes.
Texas currently has the sixth highest level of income inequality, according to the Center on Budget and Policy Priorities, and the state’s lowest earners have seen their incomes drop 10 percent in the last decade.