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The games our tax system plays

I find this just fascinating.

BagOfMoney

It’s been described as bribery, taxation without representation and a shady political maneuver. Others have called it an innovative way to deal with budgetary problems and get things done.

Ever since Texas lawmakers made it more difficult for cities to absorb suburbs into their boundaries 15 years ago, Houston has been quietly cutting deals with municipal utility districts to levy a 1 percent sales tax on purchases in neighboring communities.

The agreements for “limited purpose annexations” now generate tens of millions for Houston and for the utility districts, which split the revenue. But some question the appropriateness of the deals.

Houston seems to play off suburban fears of annexation to demand taxes in exchange for promises to leave them alone, said Paul Lewis, a professor of local politics and urban development at Arizona State University.

“It’s a kind of bribery,” he added.

Some local officials wonder whether the agreements lead to wasteful spending that lacks transparency. The revenue is not subject to the voter-approved revenue cap that has forced the city to lower its property tax rate and slash budgets. Critics also note that Houston provides no services to most of these suburban areas, whose residents can’t vote in city elections.

“It’s unconstitutional,” Fort Bend County Judge Bob Hebert said. “I thought we fought a war back in the 1700s on ‘taxation without representation.’‚ÄČ”

Utility district leaders defend the agreements, noting that they take half the money collected and receive a contractual promise they will not be fully annexed for 30 years.

City officials agree that the agreements are fair. Census figures show that nearly two-thirds of those who work in Houston live outside of the city limits. City officials note that suburban residents attend plays in the Theater District, watch free concerts at Memorial Hermann Park and put wear and tear on city property.

“It is the primary tool we have to deal with the growth that goes on outside the city and the burden put on infrastructure by suburban citizens without our property tax,” Houston Finance Director Kelly Dowe said.

You can read the story and decide its morality and/or constitutionality for yourself. Personally, as a resident of Houston, I have no problems with it. What occurs to me in reading this is that it’s a natural outcome of our overall system of taxation in Texas, which is heavily dependent on sales and property taxes, and also on legal ways to minimize one’s sales and property taxes. There’s one way we could avoid all the problems associated with a tax system designed around political boundaries, and that’s to switch to one that is primarily dependent on income taxes instead. Of course, there are plenty of ways to game an income tax system, too, so it would most likely substitute one set of shenanigans for another. But at least it would be something different for us to argue about.

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One Comment

  1. PDiddie says:

    I was fascinated as well, but because it (seemed to me) was a well-kept secret. Maybe I just haven’t been paying close enough attention. And yes, it strikes me as mob-styled protection money against annexation. That nobody has revealed the game to my awareness before now also makes me feel as if there’s been some collusion involved, though.

    With places like the The Woodlands already suffering from infrastructure degradation just as its own boom from Exxon Mobil gets ready to blow, we should quickly see the effects of this legislative session’s tax-cut-related austerity there. And maybe some of that vaunted trickle-down effect in action.

    They voted for it in droves after all, so I hope they enjoy it.