Texas, a state so nice they banned income taxes twice.
On Tuesday, some 76 percent of voters in the state approved Prop 4, a constitutional amendment that prohibits the imposition of a state income tax.
The immediate practical impact of the vote is slight, given that Texas currently has no income tax, and the state constitution had already made passing one a difficult endeavor. The success of Prop. 4 nevertheless highlights the bipartisan political appeal of Texas’ long refusal to take a cut of people’s paychecks.
“THANK YOU TEXANS!!!! Future generations of Texans will thank you too,” tweeted Texas Gov. Greg Abbott, a Republican, after the vote. “Keep Government out of your pocketbook.”
Prior to the vote, Abbott had tweeted a video of himself tearing up a California state income tax return form. “I never want to see one of these in the great state of Texas,” he says to the camera.
This is not the first time Texas has passed strict constitutional limits on the state’s ability to tax income. In 1993, voters approved an amendment that required any income tax to be approved by both the state legislature and voters through a statewide referendum. Any revenue generated by an income tax had to be dedicated to education funding.
That wasn’t enough for some state legislators, however.
At the end of last year, Rep. Jeff Leach (R–Plano) introduced HJR 38, which would refer the question of a constitutional prohibition on an income tax to voters. Because Leach’s measure would amend the state constitution, it required two-thirds supermajorities—or support from some Democrats—in both the House and Senate, which it got.
“My constituents don’t want a state income tax. And that’s what I’m here to do is represent them,” said one Democratic lawmaker when asked by the Dallas Morning News why she voted with Republicans to put HJR 38 (later to become Prop 4) on the ballot.
A full two-thirds of the Texas legislature is now required to repeal the state’s income tax prohibition. Actually imposing an income tax would require additional legislation.
The lack of a state income tax is key to Texas’ economic competitiveness, says Janelle Cammenga, a policy analyst with the Tax Foundation, a D.C.-based think tank.
“Income taxes are more economically harmful than consumption taxes because they capture both present and future income, and this discourages investment,” she tells Reason in an email, writing that “the absence of an income tax is the most competitive part of Texas’s tax code.”
Texas is one of seven states to opt out of levying an income tax. The Tax Foundation rates Texas 13th on its state business tax climate index. The Cato Institute’s “Freedom in the 50 States” project ranks Texas as the seventh most free state on fiscal matters.
In addition to being good policy, the absence of an income tax has proven pretty popular, says Cammenga.
“Some states have better alternatives to income taxes than others, but when a state eliminates its income tax, most voters like to keep it that way,” she says. “That’s true in red states like Texas and blue states like Washington.”
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