From Todd Hill at Burnt Orange Report:
Yesterday at a fundraiser in Weatherford, Republican Phil King let it be known that the Texas House has formed a committee to figure out how to abolish the use of personal property taxes to support public education and instead transition to a regressive sales tax.
. . .
King had this to say to the Weatherford Democrat:
"I am absolutely convinced that my constituents, and frankly, the voters across Texas would rather pay a sales tax when they purchase something than a property tax for the rest of their life," King said speaking by phone Wednesday.
I agree that this is a horrible idea, but not necessarily with Todd's reasons:
A sales tax is a tax on the poor and middle class, plain and simple. The majority of middle class and poor Texans spend the majority of their taxable income on goods and services. Considering the heavy tax burdens, and current economic burdens already on this class of Texans, a sales tax would certainly crush what remains of this core block of constituents. You can't lay the future of Texas public education on the unpredictable peaks and valley's of an economy. This move would cripple the foundation of Texas public education, which the majority of Texas children attend.
Is a sales tax necessarily more regressive than a property tax? Depending on the homeowner's equity and interest rate, property taxes may account for 25% or more of annual housing costs. Someone who pays 30% of gross income on housing thus may pay 7.5% of his gross income in property tax. Lower-income households, who often spend much more than 30% of their gross income on housing, are hit even harder. (Renters pay the property tax, too -- it's just folded into their rent.)
Someone spending 30% of gross income on housing would be lucky to have 50% of gross income left to spend on taxable goods. Even if the sales tax were jacked up to 10%, such a person would pay just 5% of gross income in sales tax. Also, sales taxes are more easily avoided than property taxes.
On the other hands, cutting property taxes probably would cause property values to rise. Current homeowners would benefit at the expense of renters/future homeowners.
Still, It's not clear to me that sales taxes are more regressive than property taxes.
This is still a horrible idea for two other reasons.
First, sales taxes mean state funding. State funding means state control. Schools have an incentive to be more responsive to students and parents when they are subject to local control. (They're already subject to too much state and federal control.)
Second, slashing property taxes and raising sales taxes creates perverse incentives for cities and towns. New residential development becomes a financial burden because it does not pay its own way through property taxes. Cities become overly dependent on retail, causing them to fight each other for shopping centers while shutting out new homes. That's arguably what Proposition 13 did to California. In fact, there's a good argument that Proposition 13 accounts for much of the anti-growth sentiment in that state, which in turn has caused the crippling home prices out there. I doubt those spending 40% of their gross income on interest-only mortgages are reveling in their low property taxes.
