Texas sales tax receipts increase of 9.5 percent in November over last year highlights the need for a mechanism whereby sales, property or other taxes would automatically be cut as money floods in. Think of it – how many of the foreclosures engulfing Texas families could be avoided if property taxes were proportionally and immediately reduced.
While this sharp rise in sales tax receipts is encouraging for the state’s economy, under the present system, it simply means that a larger surplus will be piled up by the time the Legislature reconvenes in 2009. The political whims of lawmakers will determine how much, if any, of that money will be returned to taxpayers. Even if much of the windfall is ultimately refunded, the government will have sat on money that many Texas families needed yesterday.Â
There’s also a confluence of political forces that makes it challenging to ensure that this money – at least beyond the increased cost of government as measured by population plus inflation – is returned to taxpayers. Liberals of course want to spend the money on more government programs, but there is also a pessimistic instinct among conservatives that sometimes leads them to squirrel the money away due to worries about reduced growth, or even a recession, in the future. However, the state already has about $4 billion in its “Rainy Day Fund.” Moreover, sales tax revenues are historically very durable – they may rise at a much lower rate during bad economic times, but unlike income tax revenues, they rarely decrease or grow at a rate below population plus inflation.
The solution is clearly to implement a mechanism where some or all of the sales tax collection surpluses are automatically and quickly returned to taxpayers. The simplest approach and one floated last session was to automatically adjust the sales tax rate, but it would be even better if a workable way can be found to automatically use that revenue to offset property taxes, as they are the most harmful to Texas families, partly because one can voluntarily choose to buy less and pay less in sales tax, but there is no way short of moving to a lower valued home to reduce one’s property tax burden. With some automatic refund mechanism in place, we can truly celebrate news of robust sales tax revenue collections, as we know they won’t just go into a bottomless pit to expand government.Â
