CRAYMER: Voters, beware of candidates with false promises of tax relief | texasinsider

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Replacing property tax with an improved sales tax could triple what Texans pay for every dollar spent

By Dale Craymer

AUSTIN, Texas (Texas Insider Report) — Wouldn’t it be great if you didn’t pay property tax? No more fights with rating districts over our values ​​– in fact, no more rating districts at all! Even better, we can finally feel good when the market drives up our home values ​​because we won’t have to worry about impending tax bills.

Some Texas primary candidates say it could easily be done by raising state and local sales taxes, or “consumption” taxes, but offer no specific plan, just rhetoric. But even a cursory look at the numbers shows that swapping property taxes for a higher sales tax is unrealistic.

Texas’ extraordinarily high tax burden is causing real harm, but voters should beware of false promises.

Many states rely on the “three-legged stool” of property, sales, and income taxes. Texas, thankfully, only has two of those legs, but the price we pay for no income tax is increased sales and property taxes. If the Texas tax system became a one-legged sales tax stool, that sales tax would have to be in the stratosphere.

Last year, according to Texas State Comptroller, Texans paid $73 billion in local property taxes and $46 billion in general sales taxes. Replacing the property tax with an improved sales tax, without changing the tax base, means that the sales tax would roughly triple to almost a quarter on every dollar spent. That astronomical rate would push Texans to shop in all 49 states with lower sales tax rates, forcing countless retailers here to close.

If such an increase in the sales tax rate is unsustainable, what about offsetting property tax revenues by closing the tax exemption “loopholes”? Among the items that could then be taxed:

 

  • Races
  • Gasoline
  • Water and electricity bills
  • Services from a long list of providers, including:
    • Health professionals
    • car mechanics
    • Lawyers
    • accountants
    • Real estate agents
    • Architects, and
    • construction workers

Add to that manufacturing supplies, machinery, and even raw materials (making Texas the only state to tax these items and possibly scare away new business investment). Even then, such a massive expansion of the sales tax base would only bring in about $28 billion according to the comptroller, leaving you short by $45 billion. The sales tax rate should still more than double from what it is today.

A sales tax at this level would hurt low-income Texans and small businesses. Low-income families have to spend more of their wages on essentials, which means the sales tax will be proportionally heavier. Small businesses that enter into contracts with, for example, accountants and lawyers would have to pay sales tax on these services.

Large companies, which have these professionals on staff, would not.

Property tax/sales tax interchange is more than a spreadsheet challenge – the resulting system must be viable and fund government at all levels, including school districts, cities, counties and special districts.

Small towns and rural areas would see their land base traded for a non-existent commercial base. Big cities with a wide array of stores would drain dollars from their smaller neighbors. To remedy this, we would need to levy a statewide sales tax and then allocate funds to local governments – the same type of system that has kept the state in court for funding equitable public schools for decades. Even then, local governments would be crippled from constructing new buildings and infrastructure, as financiers typically demand a property tax pledge on most new local debt.

So when someone says property tax can be eliminated with an improved sales tax, you should ask yourself two questions:

 

  1. What items will I have to pay new tax on and at what price? And
  2. How will my local governments operate in this new environment?

Like all Texans, I’m definitely not a fan of the property tax. There is good news, however, as we see the results of 2019 state legislation to slow the increases we are accustomed to.

The Texas Taxpayers and Research Association estimates that school property tax bills in 2021 were $7 billion (or 9%) lower than they would have been due to Senate Bill 2 per State Senator Paul Bettencourt and House Bill 3 by State Rep. Dan Huberty – savings that will grow in each of the years to come. Yes, property taxes continue to rise, but not as fast as Texas paychecks are rising. And those savings will add up over the next few years.

Standing up against the property tax is good policy. But the promise to eliminate property taxes entirely is empty. If it was really possible, Texas would have done it a long time ago.

Dale Craymer is president of the Texas Taxpayers & Research Association, an organization supported by its corporate and individual members interested in state and local tax policy in Texas.

 

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