Opposition to taxes may be bad for Texas

The presidential candidates may not use such stark terms, but that's the defining difference in their economic plans. The Democrats want to increase taxes on wealthy Americans and some corporations, and use the proceeds to bolster the middle class.

This is a shift that would benefit Texas more than most states, because we have more lower-paid residents and a greater need for public services, especially healthcare. We also have more families with children, and they would tend to gain more from the Democratic proposals.

But Texans usually reject any call for higher taxes, regardless of who stands to get gored. Consider how we promptly dismiss talk of a state income tax, even if it might stabilize revenue and impose a fairer burden. Maybe this stems from a Western attitude of self-reliance. Or a distrust of government in general. Or a smaller turnout among minority voters.

Whatever the reason, there's a long history here -- and elsewhere in the South -- of people voting against their economic self-interests.

The question is whether we're approaching a tipping point on that score.

The economy and tax cuts under President Bush have led to stagnant wages for most workers, while the highest-paid have racked up significant gains. In Texas, unemployment has been low and job growth strong, but the price of utilities, gas, food and college tuition keep rising sharply.

More people are feeling more vulnerable, which is why likely voters in the Texas primary have rated the economy as their No. 1 concern.

Indeed, most workers are falling behind or having trouble keeping pace, says Travis Hale, a researcher for the University of Texas Inequality Project, which measures wage trends.

From 2001 to 2005, the average after-tax income for the lowest-paid 20 percent of the U.S. population fell by $300 a year, after adjusting for inflation, federal statistics show. For the middle quintile, pay rose just $1,300, or 2.7 percent, in the four years.

The top 1 percent of earners in the same period? Average take-home pay rose 38 percent, to more than $1 million.

"When does the difference between 'the rich and the rest of us' get so stark that a 'milking the rich' tax strategy takes on resonance?" Hale wrote in an e-mail. "If the economy becomes the transcendent issue of the upcoming election, that time may be upon us."

Tuesday's presidential primary won't provide a referendum on tax policy, because the Democrats hold such similar positions. But the campaigns have provoked a serious discussion, and huge crowds turning out for rallies and early voting could indicate that public sentiment is turning.

John McCain of the GOP certainly offers a contrast to Barack Obama and Hillary Clinton. McCain wants to make the Bush tax cuts permanent and then cut business taxes further. He'd pay for this, in part, by reducing government spending.

Obama and Clinton want to raise taxes on the highest earners by letting the Bush tax cuts expire at the end of 2010. That would affect families making more than $195,850 in taxable income last year.

The Democratic candidates would also end tax breaks for companies that ship jobs overseas or shelter income in offshore havens.

They would use the higher tax revenues to help pay for their healthcare plans, which could potentially affect millions in Texas. They would also increase tax credits for college tuition and boost the government match for retirement savings.

Will Texans embrace such plans or recoil at the prospect of expanding government and redistributing wealth?

"Tax cuts for the rich or healthcare for their children?" says James Galbraith, who teaches economics at UT-Austin and directs the inequality project. "That pitch ought to resonate in Texas, but people are so violently anti-tax here."

In Texas, 71 percent of families had adjusted gross income below $50,000 in 2005, compared with 68 percent in the United States, says Kim Rueben, a public-finance economist at the Urban Institute in Washington.

Compared with the nation, Texas also had slightly fewer families earning more than $200,000, and slightly more joint tax returns with more dependents. Those patterns indicate that the state would generally benefit more and suffer less from the tax changes that Democrats are proposing. But voters might balk, nonetheless, because many imagine that they'll someday become a big moneymaker. And Texas has produced some striking incomes, especially in the energy sector, where high oil and gas prices have created a boom.

Hale, the researcher, says earnings more than doubled in oil and gas extraction this decade, growing much faster than the number of new jobs.

The Bush tax cuts reduced rates across the board, but most attention is focused on the top marginal rate, which fell from 39.6 percent to 35 percent. If the cuts are made permanent, the impact would be greatest for the top-income group, says Jason Furman of the Brookings Institution.

Furman told Congress that the bottom quintile of workers would see an $80 increase in after-tax income from permanent Bush tax cuts; the middle quintile would get an additional $889 a year; and the top 1 percent would get an extra $79,713.

Such numbers prompted McCain to oppose the Bush cuts in 2001, saying the benefits went to the most fortunate at the expense of the middle class. He says he supports the cuts now, because increasing the rates could hurt the shaken economy, even if the cuts won't expire until 2010.

The fundamental issue for Texans is whether they believe there's a better way to handle taxes. State leaders almost never give them such an choice. But Obama and Clinton are promising to rewrite the playbook.

Are voters looking for that kind of change?