When the government is fighting over taxes, Texans usually lose. However, this time may be different. Currently in the Texas Legislature, the two houses are battling it out not over which taxes to raise, but rather which taxes to cut. On Wednesday, State Rep. Dennis Bonnen (R-Angleton) unveiled a tax relief proposal that would provide nearly $5 billion in tax relief for both businesses and individual Texans.
This proposal is different from the property-tax-centered tax relief passed by the Senate two weeks ago.
Bonnen’s tax relief package (HB 31) offers a cut in the state sales tax, reducing the rate from 6.25% to 5.95%. (The extra 2% usually found at the bottom of your receipt is levied at the local level.) Estimates cited by Bonnen contend that such a cut would provide the average Texas household savings of $172 a year. Businesses, which themselves pay a large portion of sales tax, would realize savings as well.
“This is tangible tax relief that will benefit families and businesses of all kinds every time they buy something,” said Bonnen. “Texans won’t have to take our word for it that we cut their taxes. They will see it on every receipt.”
Coupled with Bonnen’s proposal is a measure by State Rep. Murphy (R-Houston), which would cut the onerous franchise tax. Murphy’s legislation, HB 32, provides a 25% tax cut across the board for businesses.
The dual proposals have a marked contrast from the tax relief plan offered by the Texas Senate. Rather than lowering the sales tax, the Texas Senate has instead looked at providing property tax relief. Though the measure carries the support of both Gov. Abbott and Lt. Gov Patrick, Bonnen and others in the Texas House have shied away from supporting the property tax relief.
“If our experience in recent years has taught us anything, it’s that property tax cuts are quickly swallowed by local rate hikes and rising appraisals,” said Bonnen. “Any property tax cut passed without major systemic reform is guaranteed to meet the same fate.”
Though House leaders are correct in asserting that previous property tax relief efforts haven’t been lasting, the Senate’s proposal would be. By pegging the statewide homestead exemption to a percentage of median home values, rather than a fixed figure, taxpayers would continue to realize benefits from the increased exemption even as their property values rise over time.
According to a recent poll by the University of Texas and The Texas Tribune, Texans are more dissatisfied with property taxes than the state sales tax. However, when asked if there was any thought that Texas voters might reject a sales tax cut instead of property tax relief, Bonnen dismissed the measure.
“I don’t think anyone is going to get in trouble for cutting one tax over another,” Bonnen said. Bonnen’s statement may be true of Texas voters, but big business has provided an alternative example.
In regard to business tax cuts, the Senate has proposed cutting the rate by 15% and raising the revenue threshold before a business is subject to the tax. Despite support from small businesses, the measure sparked outcry from big business groups like the Texas Association for Business, prompting a sharp rebuke from State Sen. Charles Schwertner (R-Georgetown).
“If you’ll forgive me, it doesn’t seem as though you’re concerned with the state of Texas providing tax relief per se, just in providing tax relief that doesn’t directly benefit big business,” wrote Schwertner shortly before the Senate passed his tax reform measure.
TAB has expressed full support for the current House plan.
One more difference in the House and Senate proposals is on the issue of the spending cap. Where the Senate proposal requires the passage of an exemption to the cap for tax relief—something that requires careful consideration—Bonnen argues his legislation falls underneath the existing cap.
Further analysis will be required on both proposals, but it’s clear that the Texas Legislature is moving in the right direction. After all, it was not long ago that House leaders were decrying tax cuts as “gimmicks.” Still, lawmakers and taxpayers shouldn’t be content with simply positive movement.
Lt. Gov. Dan Patrick blasted the Texas House proposal in a statement:
“I appreciate the hard work of Ways and Means Chairman, Representative Dennis Bonnen. However, his plan, that does not include any property tax relief to homeowners, is out of step with Texans, my office, the Senate and the Governor, who said in his State of the State address, “I will reject any budget that does not include genuine tax relief to Texas employers and job creators. I will also insist on property tax reduction. It’s time for property owners – not government – to truly own their property.”
