Texas has the Seventh Lowest State and Local Tax Burden in the Nation for FY 2016

Apr 24, 2018

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In Fiscal Year (FY) 2016, Texas collected $112.7 billion in state and local taxes—or $4,039 for every man, woman, and child. While this is an impressive sum of money, it tells us little about whether or not the average Texas taxpayer can afford this level of taxation?


To better answer this question, this analysis will calculate Texas’s tax burden relative to the private sector. Ultimately, it is the private sector that creates new wealth and income. A high tax burden means a state is hobbling its private sector relative to other states and reducing their long-run economic growth potential.



Click here to view tax burden data by state, type of tax, and for years 1950 to 2016


Fortunately for taxpayers, as shown in Chart 1, Texas’s state and local tax burden (tax collections divided by private sector personal income) was the seventh lowest in the nation for FY 2016 at 11.8 percent—or -17 percent below the national average of 14.3 percent.


Chart 1 Texas State and Local Tax Burden FY 2016.jpg


#Texas state and local #taxburden in FY 2016 was the 7th lowest in the nation at 11.8%— -17% below US average of 14.3% @keypolicydata #TXpolitics #TXpol #TXlege #TXsen #TXgov #PolicyData (click to tweet)


As shown in Chart 2, Texas’s tax burden has increased over time by 52 percent to 11.8 percent in FY 2016 from 7.8 percent in FY 1950.


Chart 2 Texas State and Local Tax Burden by Type of Tax FY 1950 to 2016.JPG


#Texas state and local #taxburden has increased 52% between FY 1950 (7.8%) to 2016 (11.8%) @keypolicydata #TXpolitics #TXpol #TXlege #TXsen #TXgov #PolicyData (click to tweet)


Click here to view tax burden data by state, type of tax, and for years 1950 to 2016



To put Texas’s tax burden into perspective, let’s compare it to size of major industries in the state (as a percent of private sector income). As shown in Chart 3, Texas’s 11.8 percent tax burden is greater than these combined industries: manufacturing (9 percent), educational services (1 percent), and utilities (0.8 percent).


Chart 3 Texas State and Local Tax Burden vs. Major Industry FY 2016.JPG


#Texas state and local #taxburden > combined industries: manufacturing, educational services, and utilities @keypolicydata #TXpolitics #TXpol #TXlege #TXsen #TXgov #PolicyData (click to tweet)


Texas’s low state and local tax burden can, obviously, be attributed to not having an individual or corporate income tax since they tend to be progressive (higher tax rates on higher levels of income) which increases the tax burden over time.


However, Texas’s lack of an income tax is diminished by other higher than average taxes such as the property tax (5.2 percent, 13th highest), and the sales tax (4.2 percent, 12th highest).


Texas’s high sales tax is due to their margin tax that was first introduced in 2008 (see this Tax Foundation study for more historical information on the margin tax). The margin tax is a gross receipts tax which means that it is levied on a very broad-based number of goods and services and that leads to tax pyramiding. 


Tax pyramiding creates all kinds of very bad economic distortions (pdf) by imposing higher effective tax burdens on some industries, but not others—especially industries that are near the end of the value-added chain. Texas needs to ditch the margins tax, but at the same time increasing other taxes is not the answer either. The solution is to adopt my proposed Business Flat Tax (a modified version of New Hampshire’s successful Business Enterprise Tax) (pdf) in place of the margins tax.


Of course, the tax burdens for local government can vary just as much as they do among the 50 states. As such, we have also calculated the local government tax burden for every county in Texas—this includes every taxing jurisdiction within the geographic county borders whether it is a city, a special district, or county government itself.


The 20 Texas counties with the highest local government tax burden include:


  • Loving County, TX (141.5 percent)
  • King County, TX (101.8 percent)
  • Kenedy County, TX (85.8 percent)
  • Terrell County, TX (71.9 percent)
  • Borden County, TX (61.5 percent)
  • Kent County, TX (57.1 percent)
  • Upton County, TX (49.6 percent)
  • Crockett County, TX (47.7 percent)
  • Jim Hogg County, TX (38.5 percent)
  • Yoakum County, TX (35.0 percent)
  • Roberts County, TX (34.3 percent)
  • Brooks County, TX (34.3 percent)
  • Freestone County, TX (34.2 percent)
  • Pecos County, TX (33.9 percent)
  • Zapata County, TX (31.7 percent)
  • Reagan County, TX (30.6 percent)
  • Wheeler County, TX (29.3 percent)
  • Crane County, TX (28.5 percent)
  • Hardeman County, TX (26.6 percent)
  • Somervell County, TX (25.1 percent)


Note: These counties tend to be rural with limited private sector activity combined with significant oil and gas infrastructure leads to seemingly high local tax burdens.


The 20 Texas counties with the lowest local government tax burden include:


  • Archer County, TX (4.9 percent)
  • Eastland County, TX (4.9 percent)
  • Hamilton County, TX (4.9 percent)
  • Medina County, TX (4.8 percent)
  • Smith County, TX (4.8 percent)
  • Guadalupe County, TX (4.6 percent)
  • Denton County, TX (4.6 percent)
  • Kendall County, TX (4.5 percent)
  • Hardin County, TX (4.5 percent)
  • DeWitt County, TX (4.4 percent)
  • Coryell County, TX (4.3 percent)
  • Swisher County, TX (4.2 percent)
  • Montgomery County, TX (4.1 percent)
  • Wilson County, TX (4.0 percent)
  • Fort Bend County, TX (3.7 percent)
  • Castro County, TX (3.5 percent)
  • Hartley County, TX (3.4 percent)
  • Midland County, TX (2.5 percent)
  • Randall County, TX (1.9 percent)
  • Shackelford County, TX (1.9 percent)


Chart 4 Texas Local Tax Burden by County FY 2016.JPG


Click here to view tax burden data by state, type of tax, and for years 1950 to 2016


Finally, don’t forget to watch our exclusive time-lapse video of state and local tax burdens over the last 66 years! See if your state has been above or below the national average?





Category: Tax Burdens

J. Scott Moody

Scott has nearly 20 years of experience as a public policy economist. He is the author, co-author and editor of over 180 studies and books. His professional experience also includes positions at the American Conservative Union Foundation, Granite Institute, Federalism In Action, Maine Heritage Policy Center, Tax Foundation, and Heritage Foundation.

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