A sales tax would be a much more equitable, efficient form of taxation.
Texas Governor Greg Abbott announced his reelection bid in November by saying he wants to abolish school property taxes. Naturally there have been objections, and we’d like to add our own feedback: it doesn’t go far enough.
He also proposed limiting appraisals to once every five years. That would ideally lead to a reduction of payrolls as well, realizing additional savings for taxpayers. Lowering the appraisal cap from 10% to 3% is another point in his plan.
Both of those, however, carry their own risks, as do most government fixes per se. The ideal solution is simply to lift the entire burden, across all taxing jurisdictions. There are countless reasons why.
For one, taxing property undercuts home ownership.
It gives the distinct impression that those who have paid off their mortgages don’t really own their homes since they still have a bill to pay. That is of little concern to policymakers when the expense is hidden in the rents they would then pay in an apartment.
It’s a vicious cycle when you factor in that politicians’ remedy for this, debt-financed “affordable” housing projects, is sometimes paid for with property taxes.
Taxing homes also fulfills on a local level something national politicians have been trying to do: tax unrealized capital gains. The value of your home may have risen, but that doesn’t automatically translate into dollars in your pocket.
Even when the house is sold, the value of the proceeds is not “real” in an economic sense thanks to inflation.
When investors look for a safe haven in times of dollar depreciation or volatility, only gold is a more popular option than real estate. Their increased demand pushes up home values, and subsequently appraisals.
And local officials have shown little reluctance converting what their national brethren have created into increased tax revenue. It affords them the opportunity to “provide incentives” to nominally non-government organizations to carry out public programs.
This breeds cronyism, which oftentimes leads to outright corruption.
In terms of education, taxing property contributes to academic imbalances and unequal outcomes. Wealthier communities can afford more tools, assistance, etc. Rather than attacking the root problem, politicians and bureaucrats try to fix this at the surface.
See the Robin Hood plan here in Texas.
There is an alternative, more equitable form of taxation, which also happens to be the most efficient: the sales tax. Opposition is so strong, though, that it gets mislabeled as regressive. It’s not; it’s proportional. Everyone pays the same rate on purchases.
Opponents muddy the waters by discussing the sales tax in terms of income. That’s apples and oranges. It’s misguided at best, deceptive at worst.
Additionally, government-based revenue forecasts routinely overestimate revenue losses from any sort of tax simplification, or reduction. Failure to learn this lesson leads to erroneous estimates of tax rates needed to make up for such perceived shortfalls.
This time is no different.
It’s been reported that, to make up for the loss of property tax revenue, the sales tax rate would have to “more than double,” or close to triple. The JFK tax cuts of the 1960s, and Reagan’s in the 1980s, suggest otherwise.
Revenue to the treasury increased after both.
While taxes on property and those on income are not the same, they’re closer cousins than either are to sales taxes. When the tax penalty on work and savings/investment is reduced, prosperity grows, and consequently so do tax receipts.
To the extent deficits rose in the aforementioned eras, they were the result of increased spending. Similar reservations of “expand(ed) budgets” have been echoed in our debate here. One way for school districts to rein those in is by adopting zero-based budgeting.
Several ISDs here in Texas use it, while some pay lip service to it, and others simply don’t. Ironically enough, not only do the latter not use it, but they have a tendency to push bond packages on voters in the face of declining enrollment.
Coupled with calls to increase the “basic allotment” for public schools, which is essentially fun money for districts, something is amiss. The only surefire way to enforce fiscal discipline is to tighten the revenue streams.
The press casually mentions that proponents of property tax reform see the taxes as “illegitimate.” They’re not wrong. If this involuntary tax is not paid, homeowners can face penalties, including the loss of their home.
How is this not a “moral” issue?
Like Oklahoma, Florida, et al., we seem to have learned a lesson from the 16th Amendment to the US Constitution. Lawmakers in Austin have submitted, and voters approved, walling off labor, savings, and investment income from taxation.
The lesson the political establishment should heed is that we need to do the right thing first, and then budget accordingly.
