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Texas Sees Record 25.6 Percent Surge in Tax Revenue as Inflation Soars

U.S. and Texas flags fly in front of high voltage transmission towers in Houston, Texas, on Feb. 21, 2021. (Justin Sullivan/Getty Images)

Tax revenue in Texas increased by a record 25.6 percent in the current fiscal year through August, driven by economic growth and inflation, according to state Comptroller Glenn Hegar.

All funds tax collection for the fiscal year 2022 through August came in at $77.2 billion, topping projections made in the state’s Certification Revenue Estimate by almost $841 million, data from Hegar’s office show.

Since 1988, growth in all funds tax collections has exceeded the prior fiscal year by double digits just five times. And even then, they were only in the range of 10 to 13 percent. The increase in fiscal 2022 to date is almost double the largest increase seen since 1988.

“Over the last many months, economic growth and inflation have driven higher sales tax collections as demand remains strong and businesses and consumers continue to pay elevated prices for goods,” Hegar said in a Sept. 1 statement.

State sales tax receipts tend to spike during periods of high inflation. The 12-month Consumer Price Index (CPI), a measure of annual inflation, has remained above 7 percent for every single month in 2022, hitting a peak of 9.1 percent in June.

The CPI was at 1.4 percent in January 2021 when President Joe Biden took office. In a recently published survey conducted by The Dallas Morning News and the University of Texas at Tyler, 48 percent of respondents blamed Biden and Congress for inflation and the rising cost of living.

Texas doesn’t have a corporate income tax or state income tax, leaving the state highly reliant on sales taxes for its revenue. Sales tax accounts for 56 percent of all tax collections in Texas and is the largest source of government funding.

Sector-Wise Tax, Future Collections

“The strong growth in August came from receipts remitted by the oil and gas mining sector, which were up by nearly 80 percent compared with a year ago,” Hegar said in the statement.

“Receipts from the construction, manufacturing, and wholesale trade sectors showed double-digit growth for the ninth consecutive month, demonstrating continued strong spending by businesses in the state.”

In the retail sector, receipts from almost all segments were higher than a year back, with grocery sales and online shopping topping the list. Restaurant receipts were also higher.

However, receipts from sporting goods, hobby stores, and clothing and accessories stores were marginally lower when compared to August 2021.

Though Texas has seen strong tax collection this year, such performance might not continue. State revenues across the United States might be affected in future fiscal years, according to a report published by the Urban Brookings Tax Policy Center (pdf).

“State revenues will be affected by the current geopolitical crises, continued uncertainties related to the ongoing pandemic, high inflation, and evolving federal monetary policy,” the report states.

When tax cuts enacted during fiscal 2022 and 2023 take full effect, revenue growth also will be limited or reversed, it warns.