Could Texas leaders be so committed to lowering property taxes that they trade it for an increase in sales taxes? The answer to that question could become clearer this week.
As soon as Monday, legislators could take up two bills — House Bill 2 and Senate Bill 2 — that propose caps on local property taxes. The bills being pushed by top state leaders would make it so a city, school district or other taxing entity would have to hold a vote if its leaders wanted to raise its property tax revenues by more than 2.5 percent a year.
Municipal leaders from around the state, including Galveston Mayor Jim Yarbrough, argue such a low tax cap would threaten basic services in the city and require cuts to public safety.
The tax proposals are controversial enough that they’ve yet to make it to the floor of either the Texas House or Senate. On Wednesday, in an apparent effort to incentivize a vote on the tax cap, Texas Gov. Greg Abbott, Lt. Gov. Dan Patrick and Speaker of the House Dennis Bonnen made another proposal: if legislators agreed to a property tax cap, they would back a 1-cent increase to the state sales tax .
“If the 1-cent increase in the sales tax passes, it will result in billions of dollars in revenue to help drive down property taxes in the short and long term,” the three said in a statement.
The sales tax plan drew cautious support from some of Galveston County’s elected legislators.
“I support a sales tax for property tax swap, but only if it is 100 percent dedicated to buying down property taxes,” said state Rep. Mayes Middleton, of Wallisville. “A swap must have ironclad limits on the property taxes being bought down, so the buy-down is not immediately eroded away by valuation and tax rate increases.
“This plan will work well, but only with careful guardrails in place that protect the taxpayers.”
Similarly, state Sen. Larry Taylor said he could support the sales tax, if it was targeted at lowering certain kinds of property taxes
“I am supportive of the consideration of an increase in sales tax only if it is for a dollar-for-dollar decrease in school property taxes,” Taylor said.
On Wednesday, the House of Representatives is scheduled to consider a bill that would do just that. The House Ways and Means committee will consider House Joint Resolution 3 and House Bill 4621, which specifically proposes trading a decrease in school property taxes with an increase in sales tax.
State Rep. Dan Huberty’s bills call for a constitutional amendment to raise the sales tax. It would need to be approved by two-thirds of both the Texas House and the Senate and by a majority of voters in November to take effect.
The sales tax proposal would raise the statewide sales tax from 6.25 percent to 7.25 percent. That means in places like Galveston, which already has a 2 percent local sales tax, total sales taxes could be as high as 9.25 percent.
The Texas Center for Public Policy Priorities, a progressive think tank, called the plan the wrong approach to addressing tax reform in Texas that will end up taking more from low-income people.
“Our sales tax in particular falls more heavily on low- and moderate-income families because these households usually spend most of their income providing for their families,” said center CEO Ann Beeson. “Wealthier families can afford to set aside savings or spend money on non-taxable services like lawyers or accountants.”
Texas has the 13th-highest state sales tax rate in the country. A 7.25 percent sales tax would put the state equal with California, as the highest tax rate in the country.
Like the property tax cap, the sales tax idea is being met with skepticism from local officials. A proposal to raise taxes coming so late in the session seems to be a concession to some of the criticisms that municipal leaders have had of a tax cap.
“It would appear to me that they’re acknowledging the fact that local governments are in need of capital to do the projects that are in front of them,” League City Mayor Pat Hallisey said.