Commentary: Replacing property tax with higher sales tax doesn’t add up

It’s no exaggeration to say that Texans don’t like paying property taxes; we have some of the highest in the nation. Could we kiss those tax bills goodbye by modestly increasing the sales tax? That’s among the property tax relief options now floating around the Texas Capitol.

If it sounds too good to be true, you’re right. Even a cursory look at the numbers shows that swapping property taxes for a higher sales tax is unrealistic.

In 2016, Texans paid $36 billion in state and local sales taxes. Property taxes totaled more than $56 billion — far more than what a few more pennies added to the sales tax would raise.

GOVERMENT: Gov. Abbott unveils property tax plan with a 2.5 percent revenue cap.

In fact, the current state sales tax rate of 6.25 percent would have to almost quadruple to a whopping 23 percent to wipe out the property tax, according to a 2012 analysis by the state comptroller’s office. Add another 2 percent for current local taxes, and you’re looking at a 25-percent sales tax rate: a quarter in tax on every dollar you spend.

That astronomical rate would drive most Texas storefronts out of business as Texans drive to lower-tax states to shop or order goods online from retailers that don’t collect sales tax. Though state law requires Texans to remit those uncollected sales taxes on their own, few ever do.

If such an increase in the sales tax rate isn’t viable, what about eliminating tax exemption loopholes? Among the items that then would be taxed: groceries and utility bills. So would services from a long list of providers, including health care professionals, lawyers, accountants, real estate agents, architects, auto mechanics and construction laborers.

Unfortunately, taxing all those items would only generate $12 billion, cutting your property tax bill by only 20 percent, leaving $44 billion in property taxes still to pay.

What other exempt items could be taxed? Cars? Motor fuels? Insurance premiums? That’s double taxation, as all those are currently subject to a different tax. Manufacturing materials? That could add another $12 billion or so, but it would be a huge blow to the state’s business climate as Texas would be the only state taxing raw materials.

Even with a massive and economically harmful expansion of the sales tax base, the rate still would need to rise well into double digits.

TWO VIEWS: Frustrated by soaring tax bills? The governor has your back.

Some have suggested extending the sales tax to real estate sales — land, houses, office buildings and factories. That would require a constitutional amendment, asking the same Texans who in 2015 voted overwhelmingly — 86 percent — to bar a real estate tax to reverse themselves. Regardless, let’s see how that might work.

Currently, a new homebuyer is expected to make a down payment of 20 percent of a home’s purchase price. For a $175,000 home, that’s $35,000. Add another $20,000 to $25,000 in sales tax, and a young couple might need to save $60,000, putting that first home even further from their reach. And, at resale, sellers couldn’t recover the sales taxes paid.

A sales tax would be devastating to new homebuyers and to the home building industry that’s so critical to our state’s economic health. Eliminating one tax on a home only to replace it with an even higher tax up front makes no sense.

The tax swap is more than a spreadsheet challenge; the resulting system must be workable and fund government at all levels, not just school districts, but also cities, counties and special districts.

Small towns and rural areas would see their property tax base traded for a nonexistent sales tax base. Larger cities with a broad array of retail would suck dollars away from their smaller neighbors. To remedy this, we’d need to levy a statewide sales tax and then allocate funds to local governments — the same type of system that has kept the state in court over equitable public school funding for decades.

Like all Texans, I’m certainly no fan of the property tax — though I do caution against falling for misleading tax policy talk that tries to sell the unrealistic dream of a painless way to eliminate your property taxes.

TWO VIEWS: Abbott willing to burn down the house to keep himself warm.

Craymer is president of the Texas Taxpayers and Research Association.

Reader Comments ...

Next Up in Opinion

TWO VIEWS: Let’s use better tools to decide which inmates get bail
TWO VIEWS: Let’s use better tools to decide which inmates get bail

Criminal justice reform is a prominent issue in the public square, capturing the interest of both ends of the ideological spectrum, as well as celebrities, think tanks and even the White House. Propelling this issue forward, both nationally and in the Lone Star State, is a recognition that change is needed. Especially when it comes to jails. One of...
TWO VIEWS: Return to real criminal justice reform, like it’s 1989
TWO VIEWS: Return to real criminal justice reform, like it’s 1989

It will surprise many to learn that once upon a time — and not so very long ago — a bipartisan coalition of Texas legislators approved an innovative plan aimed at reducing crime through progressive health and education strategies. The year was 1989, and the proposals were put together by Lt. Gov. Bill Hobby, a Democrat, with the cooperation...
Letters to the editor: Feb. 19, 2018
Letters to the editor: Feb. 19, 2018

On infrastructure funding, Trump has it right by proposing that states and corporations pay the bulk of maintenance and construction. In our early national history, entrepreneurs cut pikes through forests and built ferries to cross rivers. Users probably complained but paid the tolls nonetheless. It wasn’t until the highway system was established...
Opinion: Mass killers should be denied notoriety they crave

An orgy of mutual disgust now greets every mass shooting in America. Liberals despise conservatives who, they predict, will offer only insipid “thoughts and prayers” in the face of what they conceive to be preventable massacres. Conservatives scorn liberals who, they believe, will propose “feel-good” gun measures that would...
Author of quiet love story ‘Call Me by Your Name’ to visit BookPeople
Author of quiet love story ‘Call Me by Your Name’ to visit BookPeople

“Call Me by Your Name” is a graceful debut novel by memoirist/literary scholar André Aciman (“False Papers,” 2000,), joining young love to his familiar themes of dislocation and wandering. One could be arrested in certain parts of the world for the young love in question, which joins a 17-year-old bookish musician who...
More Stories