Replace the Property Tax with the Sales Tax

[Updates below.]

Will sales taxes one day replace property taxes? (link will rot)

State Rep. Suzanna Hupp told the Lampasas County Conservative Club last week that a significant number of Texas legislators would like to abolish property taxes. The same lawmakers would like to replace property taxes with a constitutionally capped sales tax, she said.

About one-third of her peers supports the switch to a sales tax, Mrs. Hupp said, and she counts herself in that group.
While she indicated such a proposal intrigues her, she said she does not believe there is broad enough support yet to pass such sweeping legislation.

"It would eliminate property taxes completely," she said.

Ah, now this is interesting! I could support this as a very useful reform.

At present, school districts in the state depend on property taxes to fund a large percentage of their budgets, though state funds comprise a major part of districts' budgets, too.

A departure from ad valorem, or property taxes, would represent a dramatic change in the way schools in the state are financed, Mrs. Hupp suggested. Consequently, "That's out of a lot of people's comfort zones," she said.

That's precisely one of the reasons to support the change. Switching to a capped sales tax would place a significant restriction on the growth of Texas government agencies. With property taxes, the state and local governments have a dependable and relatively consistent level of tax revenue to rely upon. With sales taxes, the revenue flucuates more as economic conditions cycle through their motions.

The idea has surfaced before, however.

During the Lampasas lawmaker's first session in the Texas Legislature, a similar proposal came up.

The more recent version would cap sales taxes at 11 percent, she said. Professionals such as doctors, attorneys and chiropractors would be taxed on their services.

It looks like the recent version tried to treat the sales of professional services the same as the sales of goods. Eh, if this law were to go into effect, I'd prefer leaving all service professions out of the tax scheme and just tax the sales of goods. Aim for the lowest level of taxation and then work from there.

Of course, an 11% sales tax is kinda harsh and would likely be the highest in the nation. Right now, here is what the Texas sales tax system breaks down to:

State - 6 1/4% tax imposed on all retail sales, leases and rentals of most goods, as well as taxable services.

City - Texas cities can impose an additional local sales tax ranging from 1/4% to 2% for a combined total of state and local taxes of 8 1/4% (.0825)

County - Texas counties can impose an additional local sales tax ranging from 1/2% to 1% for a combined total of state and local taxes of 8 1/4% (.0825).

MTA/CTD - Texas transit authorities can impose an additional local sales tax ranging from 1/4% to 1% for a combined total of state and local taxes of 8 1/4%(.0825).

Special Purpose Districts - Texas special purpose districts can impose an additional local sales tax from 1/8% to 1% for a combined total of state and local taxes of 8 1/4%(.0825).

Austin's current combined rate (in both Travis and Williamson counties) is 8.25% with a city and MTA tax of 1%.

One legislator has a "brilliant" idea on the table, she said.

If the legislature determined it requires $15,000 a year just for the basics in life, the state would send people a quarterly check -- from sales tax revenues -- to help residents of the state pay for the new levy.

Proponents contend that people with incomes of $100,000 to $150,000 a year, and upward, will spend more money, and increased sales tax revenues would compensate for the loss in property taxes, the Lampasas Republican said.

If that idea is "brilliant," then I want to know what "half-witted jackassery" is. If you are so afraid of putting the financial pinch on or looking cruel towards the poor, then don't tax them in the first place. Don't tax them and then set up a wealth redistribution scheme that WILL get gamed, that WILL be hilariously inefficient, that WILL no work in the long run, and that WON'T be enough for the political advocates of the poor.

During a question-and-answer session, Mrs. Hupp said an expanded statewide sales tax, in lieu of property taxes, probably would not include groceries or pharmaceutical drugs and that she is against an expansion of the state's franchise tax and would like to see it ended.

I get venty when I hear about bias in tax systems (aka "progressive taxation" where you pay differently according to your income), but it would be a much more elegant solution to the above.

How would it be done? *gritting my teeth and holding my breath*

If you wanted to qualify for the exemption, send in a statement from your employer where you both swear you make less than [insert arbitrary income level here]. The state would then send you a special driver's license or Texas ID card with a notice that you are exempt from the sales tax. The state would have the power to do a simple income audit to determine if you are lying. If you are unemployed, the average monthly income you earned over the last 18 months would be multiplied by 12 and if it fell below [insert arbitrary income level here], then you qualify.

Of course, the better idea would be to both kill the property tax and then impose a sales tax of 5% on all retail sales totalling $20 and up. I dig that idea of killing the franchise tax. Leave healthcare and grocery sales out of the tax's reach. Easy to compute, places a dramatic restraint on government spending, and doesn't impact the millions of small everyday sales people engage. Even though I have fundamental problems with taxation, such a scheme would be far, far preferable to what we have today.

Although she said she believes a complete changeover from ad valorem to sales taxes is unlikely to pass now, she would like to see a reduction in property taxes of at least 50 percent to 80 percent, she said.

One thing you hear over and over again with Republicans is how much they value traditional family structures. Private home ownership is integral to that. Property taxes are a constant burdent to homeowners and act as a disincentive to the wishful from trying. So I'm glad there is a growing number of GOPers who want to eliminate or reduce the property tax.

If ad valorem taxes not only for school districts but also for cities and counties are eliminated one day, she does not know how the various entities will make up for the revenue losses. But she said she believes a portion of sales taxes gathered could be sent back to the entities, such as is done with gasoline tax revenue.

On-line publication, Copyright 2001, The Lampasas Dispatch Record.

Sorry, Ma'am, but it would be time to amend the Texas Constitution and eliminate the self-imposed responsibility of the government to provide free K-12 education. Part and parcel of taking a chainsaw to state revenues is a parallel commitment to reduce the invasion of government into our lives. This means eliminating state agencies, regulations, and acts that have somehow been coded as crimes. With the reduction of these unnecesssary state expenses, state revenue be spent on it's more valid objectives of prosecuting the initiation of force .

It also means dumping the single biggest burden on the people of this state: paying for other people's education through taxation. It is a fool's game to try and provide for all when everyone has different needs and values and when the inevitable movement of progress changes the landscape. You can't "plan" for all these variables and remain unbiased and egalitarian and respective of individual rights.

There's more in the article, but it deals with other Republican efforts and ideas that I don't necessarily agree with.

UPDATE(12/5/2003 8:19pm)
More news here.

UPDATE(4/28/2004 9:23am)
I've changed my mind. The proposed solutions for Texas school financing aren't any better.

Posted by Drizzten at November 26, 2003 10:39 AM