The Truth About Taxes and Regulation in Texas

Texas may be better than most states, but a libertarian utopia, it isn't.

At least two books I've read recently have portrayed Texas as a kind of free-market paradise. Alas, it isn't so.

Rick Perry had a reason to sing his state's praises: he's the governor. In his 2010 book Fed Up!, he wrote, "We know that the route to success is lower taxes, smaller government, and freedom for every individual, because we have seen it work." He said that Texas is leading the nation "by remaining committed to the idea that Americans prosper when left free from government interference."

The Harvard economist Edward Glaeser also pointed to the fast growth of Houston and Dallas in his 2011 book Triumph of the City, crediting affordable home prices created by the lack of regulatory barriers to new home construction.

It may indeed be the case that Texas is doing better than the rest of America because it has lower taxes and smaller government. But I was there for a quick trip this past weekend, and let me tell you, a libertarian utopia, it isn't.

The pain started when I checked out of my hotel at the Dallas/Fort Worth International Airport. The City Occupancy Tax on the room was 6%, and the state Occupancy Tax was another 6%. I wound up paying $18.26 just in taxes for one night in a hotel room. I had checked in around midnight and checked out around 8 a.m., so the taxes alone worked out to nearly $2 an hour.

The elevator I took down to the rental car shuttle displayed a sign: "This elevator is regulated by the Texas Department of Licensing and Regulation 1-800-803-9202 Certificates of Compliance are located at DFW Airport Operation Center 972-973-3112." Only a bureaucrat could imagine that a traveler would want to telephone to check on an elevator's state-issued certificate of compliance before stepping on for a ride. My mind reeled at the cost and time that must have gone into installing the sign into that elevator and heaven knows how many others.

Then to the rental car. The actual rental rate was $18.38 a day. Hertz added on some charges for "vehicle license cost recovery" and "concession fee recovery" that brought it up to $28.07. That was subject to a 15% tax, or $4.22. I only had the car for about four and a half hours, so, again, state and local taxes got me for about a dollar an hour.

Both the hotel occupancy tax and the rental car tax were classic examples of taxation without representation. I don't vote in Texas or in whatever local jurisdiction the hotel or rental car garage were in, so I have no say in electing the representatives that impose those taxes. Texans may be happy they have no state income tax, but visitors are paying the price.

On my brief trip to Dallas I stopped in at one of those Western stores that sells cowboy hats, boots, and belt buckles. Sure enough, dangling along with the price tags from those nice new leather cowboy boots made by the venerable Fort Worth-based cowboy boot maker Justin Boots (now owned by Warren Buffett's Berkshire Hathaway) was nothing other than a Proposition 65 label: "WARNING: This product contains chemicals known to the State of California to cause cancer, birth defects or other reproductive harm."

The Justin Web site explains: "The label does not mean that our products will necessarily cause cancer or reproductive harm. While we believe our products are not harmful when used as designed (that means wear your boots, don't eat or lick them!), we provide the warning as a result of the California law…The penalties for not complying with Proposition 65 are steep. As a result of the steep penalties and because there is no penalty for providing an unnecessary warning, Justin Brands and many other manufacturers have elected to provide the Proposition 65 notice out of an abundance of caution in order to avoid the potential for liability."

It's bad enough that Californians have to live with these silly warnings. But now a Texas company selling cowboy boots to Texans in Texas is going to let itself be bullied into this sort of thing?

When my flight back to New York City landed late at night, there was a line out in the cold rain at the taxi dispatch stand. There were plenty of taxis lined up—the delay came when the dispatcher handed each passenger the government-issued piece of paper explaining the regulations and rates of taxi riding. On an ordinary night I would have had a flicker of annoyance at the way in which the state was slowing my way home. Maybe if we had more politicians in New York who were outspoken advocates of lower taxes and small government, we'd be better off. Or maybe we'd just be something like Texas.

Ira Stoll is editor of FutureOfCapitalism.com and author of Samuel Adams: A Life.