A new proposal from Texas’ most prominent political leaders would raise the state’s sales tax by one percent, which could generate billions of additional revenue to help provide property tax relief.
However, many Texans debate whether the proposal would help or hurt some of the state’s lower-income residents.
Texas Gov. Greg Abbott, Lt. Gov. Dan Patrick and House Speaker Dennis Bonnen all released a joint statement last Wednesday voicing their support in increasing the sales tax rate from 6.25 percent to 7.25 percent, which they said would generate an estimated $5 billion to go toward property tax relief in the coming years.
Local governments, such as Waxahachie, have the ability to add on an additional two percent onto the sales tax rate. If the measure was passed, it could increase the sales tax to 9.25 percent for some residents in Ellis County.
“Texans are fed up with skyrocketing property taxes,” the trio released in a joint statement. “If the one-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.”
Supporters of the proposal say that raising the sales tax would generate enough revenue to decrease property tax rates by 20 cents per $100, according to a report by the Texas Tribune. Pct. 3 Commissioner Paul Perry stated that he would consider the measure, but only if legislation could guarantee that the additional dollars would go towards decreasing residents’ property taxes.
“I don’t generally favor more taxes,” he stated. “Generally when the government tells you this tax is dedicated for this purpose, it hasn’t worked out very well. But if there was some guarantee that this money would actually go to property taxes, it might be worth looking at.”
However, since sales tax is considered regressive, it takes a larger percentage of income from low-income earners than from high-income earners, according to the Institute on Taxation and Economic Policy.
That leaves many dissidents to be concerned about how such a proposal might affect lower-income taxpayers. City of Waxahachie finance director Charles Harris is one such resident who shares that opinion.
“Sales taxes are much, much more volatile than property taxes,” Harris remarked. “I don’t think anyone disagrees with that. It’s way volatile – and we tend to like to avoid volatility.”
Harris stated that sales tax is based on the consumption of goods and services, it’s a relatively inconsistent compared to the revenues generated from property taxes.
“It would create a boom and bust prospect for funding – which, from my perspective, is always troublesome,” Harris remarked. “Cops and firemen tend to like to get paid every year – not just when the economy is hot. I don’t think there’s any question that the sales tax model would cycle up and down.”
He also expressed concern to the regressive nature of sales taxes and how it would impact those lower on the economic chain.
“It shifts more to people of lower income,” Harris expressed. “I’m not for that. I personally find that not alluring.”
Pct. 2 County Commissioner Lane Grayson stated his support towards the proposal, saying that residents are getting taxed out of their homes and he sees it as an active measure towards addressing that.
“Whether your income is $200,000 a year or $60,000 a year, a consumption tax is a consumption tax,” Grayson remarked. “You’re paying into the same increase I am.”
Regardless of the support behind the proposal, the increase would need to be made through a constitutional amendment, which would need support from two-thirds of the House and Senate to pass. Abbott, Patrick and Bonnen also stated that they would not act on the proposal until property tax relief bills SB2 and HB2 were passed in both chambers.
According to the Tribune, ratification of the amendment would also require voter approval and would go before them in an election in November. If voted and approved, the rate change would go into effect in January next year.