Inevitably, we come back to a sales tax/property tax swap

It’s an idea we just can’t seem to quit.

Texas lawmakers are considering an infusion of $9 billion to improve public schools and lower property taxes over the next two years. The additional $6.3 billion in the classroom is being billed as a transformational effort to better educate the state’s 5.4 million students, while another $2.7 billion would stem the tide of escalating property taxes for homeowners.

“If we’re going to make some strides on these really big items, it really has to happen this session,” said Rep. John Zerwas, R-Richmond, chairman of the influential Appropriations Committee.

While lawmakers are confident the state’s booming economy will provide big bucks to spend on public schools, they are also pitching a number of plans to increase the state sales tax in the future. The proposals include hiking taxes on items such as sweet snacks, gasoline, e-cigarette fluid and heavy machinery rentals. But the proposal with the most apparent momentum is a tax swap that would allow local governments to charge a higher sales tax in exchange for reducing property tax levies.

Even raising the sales tax by one percent “contributes a lot of money” that school districts, cities and counties could use to offset reductions in property tax revenue, Zerwas said. Some estimates predict such an increase would raise more than $5 billion a year. The statewide sales tax rate is now 6.25 percent a year. Local governments can add up to two percent.

Although Republicans are leading the charge with major tax swap proposals, it’s unclear how they will fare in the GOP-led House and Senate, particularly among lawmakers who narrowly won their reelections as Texas Democrats gain ground.

Financial implications of the bills are shaky. Several tax bills were filed a week ago, just under a deadline, and have yet to be analyzed by the Legislative Budget Board which predicts financial effects.

Increasing reliance on the sales tax troubles Eva DeLuna Castro, a budget and policy expert with the left-leaning Center for Public Policy Priorities. Not only is a sales tax considered regressive for taking more money from low-income people than the rich, but its collections are more susceptible to the ups and downs of the economy, she said.

“You need to find a revenue source that doesn’t all the sudden tank on you. Or if you know that it is going to do that, you need to put most of it away for a rainy day and use it when that rainy day comes,” she said.

[…]

Rep. Drew Springer, R-Muenster, is proposing Texas increase taxes on gasoline and close tax exemptions on items like ice cream, certain baked goods, e-cigarette vapor fluid and over-the-counter medicine.

“I don’t think people realize their ibuprofen is tax-free,” said Springer. In exchange, House Bill 2915 would allow the state to lower the maintenance and operations property tax that funds schools. His bill would also increase the homestead exemption to 50 percent of a home’s value. Texans in a home valued at $274,000 would average $1,400 a year in property tax relief, he said, amounting to $6.2 billion less in property tax collections statewide.

Another bill, House Joint Resolution 3, proposes inching up the sales tax and using money from that increase exclusively for public schools. The resolution is proposed by Rep. Dan Huberty, R-Houston, the architect of the House’s $9 billion school finance plan. The measure would require a vote in November to change the state Constitution and increase the statewide sales tax, which is now 6.25 percent. Huberty emphasized that raising the sales tax is just one measure under consideration, and that it’s still too early to pencil in numbers.

“We have to put more money into the system. It’s our responsibility,” Huberty said Thursday at an event hosted by the Texas Tribune.

Rep. Chris Turner, D-Grand Prairie is proposing the state systematically examine each tax exemption every six years to decide whether it is needed. House Bill 3968 will raise revenue by expiring out-of-date tax “loopholes” over time, he said, and is a good alternative to raising sales taxes.

“It is important to note that Texas already has a high sales tax — 8.25 percent in most areas,” said Turner, who chairs the House Democratic Caucus. “The lower someone’s income, the more it hurts, so an increase in the sales tax will hurt a lot of Texas families.”

This comes up every few years – in 2005, in 2007, in the 2012 and 2014 elections – and each time we confront the fact that swapping property taxes for sales taxes greatly benefits property owners while burdening lower income folks the most. That’s a feature and not a bug, as far as its Republican advocates are concerned. I appreciate that at least this time it’s being proposed in the context of putting more money into schools, which would then have the effect of easing the pressure on local property taxes, but the same problem remains. Rep. Turner’s proposal to evaluate tax breaks also comes up whenever sales-tax-increase bills are filed, and it usually gets quietly ignored as the higher-profile swap bills eventually die. It’s still a good idea, it just never gets any momentum behind it. Rep. Springer’s idea to expand the sales tax to more things also comes up in conjunction with swap bills, and there is merit to this approach as well, though the real money is in taxing services, which is pretty much as big a taboo as an income tax is.

To review: I support requiring a process to scrutinize and sunset every tax break we have on the books, and I support at least exploring the imposition of a sales tax on selected goods and services where it is not currently imposed. If the goal of that is to put more state money into public education, and one result is that it allows local governments to ease up on property tax collections because they are no longer trying to make up for the state’s inadequacies, I would consider that a good outcome. The Trib has more.

Related Posts:

• Where goes the tax swap plan from here?
• Yes, they really are now pushing a sales tax for property tax swap
• The tax swap is dead