Eliminating the Texas property tax

Talmadge Heflin:

If you're a homeowner in Texas, hopefully you've already paid your property taxes. After last Monday's deadline, what was already a hefty and growing tax bill will become even larger.

The Texas Legislature and our last two governors have acted in good faith to reduce property taxes, but the combination of rising property valuations and local government excesses have caused property taxes to continue their surge. So what can our state do to relieve this burden?

Last spring, the Texas Public Policy Foundation asked Arduin, Laffer & Moore Econometrics LLC to answer this question: “How can Texas eliminate the burden of property taxes and still meet the needs of Texans?” The answer? A broad-based sales tax.

By broadening the sales tax base and adjusting the rate, lost property tax revenue could be replaced with additional sales tax revenue, thereby getting rid of the need for property taxes altogether. A major burden on homeowners and businesses could finally be lifted — and would only require relatively modest changes.

If the state were to eliminate property taxes today, for example, and replace them with a broad-based sales tax, the rate could be as low as 9 percent, if it taxed all services that are taxed in at least one other state. This adjustment would be revenue-neutral; in other words, it would generate the same amount of money for state and local governments as the current system.

Or the newly adjusted sales tax rate could be set at 12.5 percent, which would tax the current base plus the sale of property, and again, still generate the same amount of revenue.

Whatever policymakers decide, the research clearly shows that abandoning the property tax system is not only possible but relatively simple. And there are a number of economic incentives to do so.

The Arduin research demonstrated that personal income, a measure of the state's wealth, in Texas could increase by as much as $3.3 billion in the first year alone. Over a five-year period, the state's wealth could potentially see gains of $52 billion.

In addition to creating a wealthier society, “the proposed tax reform would lead to a net gain of new jobs, during a five-year horizon, between 127,700 and 312,700 over the job growth Texas would have had if no tax reform were implemented.”

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So long as Texas' property tax system remains in place, no man or woman who owns a home or operates a business or has property of any kind will ever truly own what he or she possesses.

Right now, all of us rent from the government. Indefinitely.

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Amen.

Property taxes allow local governments and particularly the schools to skim revenue off the appreciation of property values, of people who can't realize the appreciation without selling their home or property. My own property taxes have more than doubled in the last 10 years without any appreciable benefit to me as a land owner. The burden of paying them gets more difficult each year.

Renting from the government is a good analogy. Right now my property taxes on an annual basis are about 15 percent of my original purchase price of the land.