As the conservative idea of replacing property taxes with sales taxes comes under political scrutiny in Texas, the practical complications pile up quickly.
The debate between the state comptroller candidates Glenn Hegar and Mike Collier — Hegar, a Republican, likes the idea, while Collier, a Democrat, calls it an enormous sales tax increase — puts the tax swap notion back in the public arena, exposing its strengths and its flaws.
The concept has been knocked around for years by research organizations, lawmakers and activists who fear that rising property taxes are pricing Texans out of their homes and other property holdings. Public schools are the biggest recipients of property taxes, but they are not alone. Those taxes are also a critical source of money for the state’s 254 county governments, for hospitals and other special districts, for cities and, well, you get the idea.
The main argument for a change is simple: People don’t control the amount of property taxes, especially when they are caught between the rising values of their homes in a growth state and the rising tax rates from the schools and governments trying to keep up with that growth.
Sales taxes, on the other hand, are based on consumption. If taxpayers can control what they purchase, they can control the taxes they pay. Sales taxes are not exactly voluntary, but they are a little less arbitrary.
A change would overturn the state’s school finance formulas and force lawmakers and local officials to negotiate everything from local control to tax enforcement to economic fairness. Politically, it is an extremely rigorous obstacle course.
Start with the big hurdle: The state’s public schools are financed in large part by local school property taxes — and a complicated set of formulas intended to ensure a state constitutional requirement that every student in Texas has equal access to an “adequate” education.
Where property is more valuable, property taxes bring in more money. In Glen Rose, the Comanche Peak Nuclear Power Plant dwarfs the rest of the property tax base, creating a wealthy school district in a place with relatively few children to educate. Some of the state’s urban areas, on the other hand, are home to school districts where property values are relatively low and the number of students is high, like the Edgewood school district in San Antonio. To keep things fair (and constitutional), the state takes money from places like Glen Rose and sends it to places like the Edgewood district.
The proposal to replace property taxes with increased sales taxes would upend the current maps of rich and poor school districts. Instead of wealth based on property values, a tax-rich district would be one that generates a lot of taxable sales. Shopping malls would be worth more — on a tax level — than nuclear plants. A convenience store would be worth more than an oil rig. A hamburger joint would be worth more than a bank.
On a sales tax map, Edgewood is worth more than Glen Rose.
School districts are only the most visible hitches in the plan. Most of the current sales tax is collected by the state, which has set the rate at 6.25 percent. Local governments can add their own sales taxes so long as no shopper in the state ever has to pay more than 8.25 percent on a purchase. Retailers and other businesses collect the taxes and remit them to the state, which in turn sends each local government what it is due from purchases within its jurisdiction.
Property taxes are collected and distributed locally. Rich school districts send some of their money, based on those complex formulas, to poorer districts or to the state, which distributes it, along with other state funds, to schools. For the most part, however, property taxes are set, collected and spent by local governments.
A switch to much higher sales taxes would change that. Local politicians may enjoy sending angry taxpayers to Austin to talk to the people who set their taxes, but those same officials bristle at the thought of going to Austin to ask for the money needed for their local budgets.
Nothing in politics is as simple as it sounds.