What do you do when your state has an unprecedented budget surplus and its voters are demanding real property tax relief? If your answer wasn’t “spend the surplus and propose a tax increase,” you are not alone. However, that is the very idea proposed by statewide leaders in Texas this week.
After the House and Senate each passed a bloated budget that would bust the governor’s own proposed spending cap and increase state spending by as much as 14 percent, Gov. Greg Abbott, Lt. Gov. Dan Patrick, and House Speaker Dennis Bonnen on Wednesday jointly called for a 1 percent increase in the sales tax to fund property tax relief. The plan would push the sales tax rate to 9.25 percent in many areas, making the Texas sales tax one of the highest in the U.S.
The plan drew fire from both sides of the aisle, as Grover Norquist, President of Americans for Tax Reform, said that the proposed measure “would result in a harmful net tax hike at a time when the state already has a budget surplus” and “will hinder Texas’s ability to compete for jobs and investment.”
Norquist is right. Though I and many other Republicans believe consumption taxes are preferable to property taxes, the plan being proposed is a bad policy and bad politics for several reasons.
1. Some of the tax increase will likely fund new spending. Since the proposal requires a two-thirds vote, it is likely that certain concessions on spending will need to be made to obtain enough Democrat support to pass the proposal. One rumor is that 25 percent of the tax increase will fund even more spending. However, if this becomes politically unfeasible, beware of an attempt to hide any new spending in a separate bill by reducing the $2.7 billion already earmarked for tax relief in the budget. However, let’s assume there are no games and 100 percent of the tax increase goes to buy down property taxes. Even then, the sales tax increase is at least indirectly funding new spending because its entire purpose is to allow state leaders to spend more of the existing surplus.
2. Property taxes will continue to rise in the absence of a real cap. Unless all taxing authorities in all jurisdictions are limited to 2.5 percent increases in yearly taxation without a taxpayer vote, an amount that approximates inflation, property taxes will quickly rise and leave Texans with high property taxes and a higher sales tax. This is exactly what happened in 2005 when the state tried a similar tax swap by increasing the business tax. This is a very important point: No version of the governor’s proposed 2.5 percent tax cap that has been proposed meets these criteria, since every version of the bill thus far has exempted a majority of the cities and counties in Texas. Furthermore, the House appears to lack the votes to pass the cap without excluding school taxes, which is the majority of our property tax bill.
3. This will be messaged as the “Republican tax hike.” This proposal will be a political albatross for Republicans in the 2020 election. Democrats have already begun labeling this a “Republican tax increase” and a tax on the poor. If there is one area where Republicans have delivered in the past, it’s been tax cuts. As a result, even people skeptical of Republican campaign promises trust us to cut taxes and not raise them. Proposing a tax increase of any kind breaks this trust and hurts the GOP brand.
4. People have lost their trust in government. State leaders are banking on voters believing this is a tax swap that will lower rising property taxes. This requires voters to believe their elected officials when they say that their support of a negative policy in the short run will result in a positive effect in the long run. This is a trust that the citizens just don’t have in their government because they have been burned too many times in the past. Regardless of how much one may personally support the governor or lieutenant governor, if a politician says he is going to raise taxes to fund a tax cut, voters will believe that only the tax increase will actually occur.
We simply can’t go into 2020 talking about the ”Republican tax hike.” Texas has a $9 billion surplus that we can use for property tax relief, enough for about $1,327 per homeowner. That is more than enough to provide meaningful property tax relief and school funding reform without raising taxes.
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