Tax swap getting better, but clock is ticking
“If at first you don’t succeed, try, try again.”
Scholars debate the author of that quote, but it could have been uttered by a member of the Texas Legislature. In fact, as the progress of plans for tax swap show, it probably was.
The swap is a proposed deal to cut property taxes but replace that revenue with a one-cent increase in the sales tax. The state sales tax is currently 6.25%, but many Texas communities tack on an extra 2% for local use, making it 8.25% overall. The new rate would thus be 9.25% in most places. That would ironically tie California for the highest state sales tax, though the base state rate here would still be only 7.25%.
The problem with tax swaps is that voters know the exchange might be temporary, and thus misleading. If property tax rates went down now but crept up later, the savings to taxpayers would be wiped out eventually — and probably fairly soon.
But give state senators credit for realizing this potential flaw and trying to avoid it. Their latest plan is to raise the homestead exemption for property taxes collected by schools from $25,000 to $40,000. Technically that could be changed later, but it would be very hard politically. For all practical purposes, tax relief like that is permanent.
In addition, school property tax bills would be reduced by an estimated 15 cents per $100 of valuation. For the owner of a $200,000 home, the 15-cent reduction would lower their tax bill by about $300 a year.
That is less permanent, because tax rates or appraisals could go up for a variety of reasons, and probably will over the long term. Either one of those causes homeowners to pay more at the end of the year. But the increase in the homestead exemption — which again, is essentially permanent — would help sell this plan to voters.
That matters, because a change like this would have to be approved as a constitutional amendment — if the House and Senate approved that option by a two-thirds margin. Texans would go to the polls, probably in November, to say yay or nay.
The measure would be opposed by at least two groups, but they probably don’t have the political clout to stop it.
One group is owners of businesses or apartment buildings. They don’t get the homestead exemption, so they miss out on that part of the savings. But they make up a small percentage of the state’s population.
Poor people probably would oppose it too, because the sales tax generally hurts them more. They have less to spend, so the sales taxes they pay for necessities make up a larger percent of their annual income. But sales taxes are paid in smaller increments, so it’s less noticeable. To some extent, consumers can also control their spending and thus how much they pay in sales taxes.
But those concerns don’t apply to the middle-class and wealthy, and that’s where the votes are in Texas, at least in turnout.
The Texas Homebuyers and Sellers Report says the average first-time home buyer in Texas is 32, married and settling into a house for at least a decade. Nearly a third of these home buyers are first-time owners, and the average age of all homeowners is 47.
The demographic breakdown of these home buyers also skews toward traditional Republican voters — 75% white, 13 percent Hispanic, 7 percent black and 4 percent Asian.
Numbers like that suggest the tax swap could pass — if it got to voters. But that’s not assured. The House and Senate have fairly stark differences on this issue, which is also supposed to generate higher pay for Texas teachers. That’s a lot of moving parts, and with a month left in the session, if something can go wrong, it just might.
Still, both chambers are controlled by Republicans, even though they lost a few seats in the November elections. The GOP seems determined to provide some kind of property tax relief to the people who elected them, and right now, this bill looks like the best bet.
It’s even possible that Gov. Greg Abbott could call the House and Senate back for a special session after the regular session ends on May 27 to nail down property tax relief. GOP leaders know this would a powerful campaign tool in coming elections — “We lowered your property tax bills.”
So they’ll probably try, try again on this issue until they get it right. Let’s just hope they don’t adopt W.C. Fields’ legendary counterquote on this issue:
“If at first you don’t succeed, try, try again. Then quit. There’s no use being a damn fool about it.”