Billy Hamilton‘s op-ed, “A big idea that’s bad for Texas” (Page B8, Sunday), made several claims about a proposal to reform or eliminate Texas’ high property taxes that need to be addressed.
Two points Hamilton did not mention: First, Texas has the nation’s 14th-highest property tax burden, totaling about $1,475 for every man, woman and child in the state, according to the Tax Foundation. Second, property taxes are assessed on the unrealized value of a piece of property based on the opinion of a government assessor. As a result, not only are Texas property taxes high by national standards, they are also prone to being arbitrary.
In contrast, sales taxes are transparent. People know exactly what they are paying, and the taxes are easy to collect and administer.
In his case for the status quo, Hamilton makes a few unsupported statements. Most important is his contention that a 25 percent sales tax would be required to replace the $40 billion per year raised by property taxes in Texas. He does qualify this statement by saying that such a rate would be needed if the “current tax base” is maintained, but then tries to say that broadening that sales tax base would encompass taxes on “groceries, water, medicine …” Nothing of the sort is on the table.
Instead of levying a higher tax on the same range of goods as are taxed today, broadening the base to include services taxed in at least one other state would allow Texas to eliminate all property taxes with a sales tax rate of 9 percent – a far cry from the 25 percent figure employed by Hamilton. Further, since services comprise a much larger percentage of today’s economy than in the past, such a broadening of the sales tax base would reflect the 21st century economy.
Most of Hamilton’s argument is built on this 25 percent sales tax straw man. For instance, he claims that supporters of eliminating the property tax ” … promise that the change would produce an economic boom in Texas, but it’s hard to see how that could be true. What business would locate here and face the prospect of a 25 percent tax on the goods and services it buys?”
Again, the rate would be 9 percent, not 25 percent. But aside from that, what would be the effect on Texas’ economy?
A high property tax rate discourages capital-intensive industry – the sort of industry that typically pays high wages. Were Texas to become the first state in the nation without a property tax, the Legislature would invite a torrent of capital into the state, boosting both jobs and net worth.
In 2009, the Texas Public Policy Foundation commissioned internationally renowned economistArthur Laffer to model the economic effects of replacing the current property tax with an expanded sales tax. His research concluded that, over five years, this reform would generate a cumulative increase in personal income of between $21.3 billion and $52.1 billion, while adding between 127,700 and 312,700 net new jobs.
Hamilton’s last argument, and one that has some merit, is that property taxes provide some 4,000 local Texas governments with 80 percent of their revenue. True, but a combination of local sales taxes and per capita allotments can replace local funding as needed. Besides, even locally funded property and sales taxes operate at the pleasure of the people’s elected representatives in the state capitol. It’s not as if the advent of property taxes predates the creation of a central government in Austin – it doesn’t.
Voters are fed up with a property tax that goes up year after year, without regard for a homeowner’s ability to pay and with little connection to the fundamentals of the real estate market. Voters have had enough of legislators tinkering around the edges and promising property tax relief that doesn’t materialize. Replacing the property tax is a big idea whose time is now.