NCPA - National Center for Policy Analysis

Sales Tax Relief Fund

April 21, 2014

Texas' model of low taxes and low regulation are responsible for the state's strong economic growth, say Talmadge Heflin, director of the Center for Fiscal Policy, and Vance Ginn, a policy analyst, at the Texas Public Policy Foundation.

The Texas Public Policy Foundation developed a "soft tyranny index," which looks at taxes, spending and regulation.

  • According to the index, Texas has the lowest measure of soft tyranny, followed by South Dakota.
  • The top 10 states with the least tyranny beat the 10 states with the highest tyranny measures by 64 percent in real private gross domestic product growth between 2002 and 2012.

Texas' economic growth has led to a corresponding growth in tax revenue, which should create a large budget surplus in 2015. The question of what to do with these excess funds is important, and lawmakers are likely to spend the extra dollars. Instead, that money should be returned to Texas taxpayers.

  • Sales tax collections have increased for 46 months straight in Texas through January 2014, and they constitute 55 percent of total state tax collections.
  • Severance taxes are also a major revenue source for Texas.
  • Some of those collections are transferred into the Economic Stabilization Fund (ESF), which has a certain cap.
  • When that cap is reached, excess funds are sent to the general revenue fund.

Heflin and Ginn suggest the creation of a Sales Tax Relief (STaR) Fund that could reduce the state's sales tax rate temporarily, in order to return excess revenue to Texas residents. The Texas Comptroller would be able to lower the state's sales tax rate temporarily based on the amount of money in the STaR Fund. The STaR Fund could be funded through legislature appropriations, and funds in excess of the ESF cap can be funneled directly into the STaR Fund, rather than into the state's general revenue fund.

Taxpayers would be incentivized to follow the appropriations process, because lawmakers who vote against appropriating dollars to the STaR Fund would be voting against tax relief.

Source: Talmadge Heflin and Vance Ginn, "Protecting Texas Taxpayers: Sales Tax Relief (STaR) Fund," Texas Public Policy Foundation, April 2014.


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