TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Monday, September 11, 2017

 Low-Tax Texas Should Pay Its Fair Share Of Harvey Costs

Hurricane HarveyWashington Post op-ed:  Low-Tax Texas Should Pay Its Fair Share Of Harvey Costs, by Peter A. Barnes (Duke; Caplin & Drysdale) & H. David Rosenbloom (NYU; Caplin & Drysdale):

As the floodwaters from Hurricane Harvey recede, the humanitarian need for federal aid to help Texas and its residents is starkly evident. Lots of aid. Right now, or as soon as Congress can approve an appropriation.

Although members of Congress from New York and New Jersey complain about the hypocrisy of Texas requesting federal aid, given the fact that the Texas congressional delegation almost unanimously opposed the federal aid package for Hurricane Sandy in 2012, the grousing amounts to nothing. With the suffering in Texas visible on every news show, America is too good to withhold support as political payback.

But that doesn’t mean funding should be a gift. Not at all. The bulk of the federal money to help Texas residents rebuild their lives and communities should come in the form of a loan — perhaps a long-term loan at a favorable interest rate, but definitely a loan.

Here is why: Texas is avowedly a low-tax state.

There is no personal income tax. There is no corporate income tax (although there is a surrogate tax on corporate receipts). There is no state-level tax on estates or inheritancesTexas ranks No. 46 out of the 50 states in state and local tax burden per capita, according to recent data from the Tax Foundation. It ranks 43rd in state tax revenue per capita.

Texas wants and needs federal help to rebuild from Harvey, and the federal government should provide significant financial aid. But it is grossly unfair for Texas to accept funds from all of America’s taxpayers to allow it to continue its exceptionally low-taxed ways. Unless Texas is willing to bear a reasonable share of the Harvey costs through increased state and local taxes, then the rest of the United States would just be giving Texas a handout. Better for the federal government to offer Texas a “hand-up” in the form of immediate cash support with the requirement that Texas generate tax revenue to repay that help. ...

There is no single correct answer for how to split the aid to Texas between loans and grants. But the generosity of Americans outside Texas will be severely abused unless Congress requires Texas to raise the tax burden on itself to help pay the costs of Harvey.

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Federal disaster aid is a federal program financed by federal revenues. There is no evidence that Texans systematically pay less (or more) federal tax than is legally required. They are in the same federal system as people in New York, Ohio, or whatever and they should be treated the same as those citizens. What Texas does in regard to its state and local taxes is a Texas issue.

Posted by: mike | Sep 11, 2017 10:13:00 AM

I agree with Mike - to "punish" Texas because you disagree with their low tax approach to state taxes seems mean spirited. I live in a very high tax state now, but have lived in Texas too and it seems to me there is a good conversation to be had about each approach.

Posted by: Chris | Sep 11, 2017 11:41:37 AM

What do State income tax and State corporate tax rates have to do with Federal tax contributions? Oh let me think for a second..... absolutely nothing.

Posted by: Paul | Sep 11, 2017 11:59:46 AM

By the same logic, shouldn't residents deep blue New England and the West Coast be subject to a hefty federal surcharge on top of everything else they pay? After all, politicians in these same states routinely argue that taxes are too low generally, so perhaps they should be penalized for not walking the walk...

Posted by: MM | Sep 11, 2017 1:45:40 PM

No logic at all to this. It's not like high tax states such as NY and NJ were spending all those revenues on preventative measures against hurricanes. If you want to make an argument for differential treatment of federal disaster relief, you could say that the wealthiest states such as NY and NJ should get loans while less affluent states such as Texas should get grants.

Posted by: PaulB | Sep 11, 2017 6:01:23 PM

In addition to the points made above, the low tax burden in Texas theoretically should free up additional funds for voluntary charitable efforts. Worth looking at.

Posted by: Curmudgeonly Ex-Clerk | Sep 11, 2017 8:33:12 PM

And in addition to the other comments, the feds already subsidize the residents of states with state income taxes through the SALT itemized deduction.

Posted by: CW | Sep 12, 2017 6:46:51 AM

Texas routinely uses its low-tax business environment to attempt to attract businesses from other states, particularly California. That kind of interstate competition is ungenerous at best. Texas should not receive federal welfare payments in the form of Harvey Handouts to rebuild its industrial infrastructure, and certainly not so that it can continue its attempts to pirate industry and commerce from other states. Texas needs to cowboy up and raise taxes sufficient to rebuild.

Posted by: Publius Novus | Sep 12, 2017 7:32:01 AM

Let's remember that it is the high tax states that shift the Federal income tax obligations of their high income taxpayers to those residing in States like Texas by virtue of the Federal deduction of State and local taxes of Federal Returns. Those who wish to investigate how laundering money for the avoidance of Federal income taxes really works should not be exploring Cayman Islands or Panama - the really big operations are conducted in places like Albany, NY and Sacramento, CA.

Posted by: Joseph W. Mooney III | Sep 12, 2017 8:13:17 AM

All states try to create environments to attract and compete for business. There is nothing inherently wrong with interstate competition, including offering lower tax environments. There may be a rational reason for the federal government to apply different disaster relief rules for low tax states versus high tax states, but neither you nor Barnes has articulated one.

Posted by: Mike Petrik | Sep 12, 2017 9:34:35 AM

"Texas needs to cowboy up and raise taxes sufficient to rebuild."

For consistency's sake, let's all agree that California should bear the full brunt of the next big earthquake that hits, shall we?

Posted by: MM | Sep 12, 2017 6:36:41 PM

Hey PN, how about this? Let's go with 100% proportional taxation/representation. You get back what you pay in. Then in Texas as we pay in less and less, we get to tell Washington more and more to go fly a kite. Works for me.

Posted by: Dale Spradling | Sep 13, 2017 6:22:42 AM

Is this an April Fool's Day joke? If not, then . . . .

Posted by: Mark Yablon | Sep 17, 2017 6:35:26 AM