December 14, 2007
The CPPP explains (again!) why Phil King's sales tax swap is a bad idea

Since State Rep. Phil King has once again raised the awful idea of massively hiking sales taxes in order to reduce property taxes, the CPPP has once again swung into action to explain why it's so dumb (PDF) to do this.

Public education is the foundation of our democracy and the engine of our economy. Texans have a collective responsibility to ensure that public education is adequately supported. This responsibility needs to be fairly distributed among Texas families in a way that supports economic growth. Recently, some have proposed that Texas replace local school property taxes by increasing the rate of the state sales tax or expanding the sales tax to more goods and services. Such a tax swap would be a bad deal for businesses, families, and public education. 1) The swap would make Texas businesses less competitive because the higher sales tax would raise the cost of Texas goods and services. 2) Taxes on most Texas families--including middle-class families--would actually go up. Only the wealthiest families would see a tax reduction. 3) At the same time, public education would be hurt. Schools would have one source of revenue, sales, which is less stable than property. With the state paying all the bills, more decisions would be made in Austin, and the link between local taxpayers and public schools would be broken. In addition, local communities could no longer supplement the basic education provided by the state.

Texans need to ask what problem we are trying to fix? Are property taxes too high? Even if Texas eliminated school property taxes, Texas would still have to raise the same amount of tax dollars. Are we worried that some residents aren't paying their fair share? In fact, everybody pays the property tax either as owners or as renters (with the tax reflected in the rent). Are we worried that property taxes discourage homeownership? Texas already has laws on the books to ensure that property taxes do not undermine homeownership. Are we worried that property taxes don't corresond to our ability to pay? Generally this is not true, but for those families for which it is true, most states address the problem through a tailored tax break called a circuitbreaker. Texas could provide a circuitbreaker too. As we discuss in this paper, trading property taxes for sales taxes does not solve any real problems, but it does create some.

Read the whole thing and remember that in the end, the overall tax level won't be reduced under this scheme, it will be redistributed. And unless you've got an expensive house, you will be one of the 90% or so of Texans who will be on the losing end of that redistribution. On top of all that, as Burka points out, this would be devastating to the public schools. Which, as he also notes, is the whole point of King's plan. Link via Eye on Williamson.

Posted by Charles Kuffner on December 14, 2007 to Budget ballyhoo