The Tax Man Cometh!

In a post on Sunday, Sept. 30, 2012, from the Opinion section of Statesman.com titled, "Lavine: Don’t abandon Texas property tax", Dick Lavine of the Center for Public Priorities Policy, argues against doing away with the current property tax program, and replacing it with a sales tax program. He says that placing the tax burden solely on a sales tax program would be too extreme, and would require at least a rate of 18%. Additionally, he states that it would damage the community’s relationship with the schools, because the schools currently look to property taxes for their revenue. He also claims that we might see taxes on many items that we are not accustomed to being taxed on, such as food and utilities. Furthermore, Lavine argues that by switching to a sales tax system, the tax burden would be higher for those making less than $125,000 a year.

Lavine’s target audience is low to moderate income households, and those households earning less than $125,000, and he says that these households would see an overall increase in their tax burden. Lavine has a valid argument, because homeowners carry the lion share of the burden when it comes to taxes, and simply erasing their contribution overnight in exchange for a sales tax might be disastrous. Think about renters who may not directly pay property taxes; however the tax on the property they rent is factored into their price to rent that property. Introducing a sales tax would definitely increase their tax burden; possibly disastrously since their landlord is not likely to lower their rent equal to his decrease in property taxes. We can look at a modest example on the other end of the spectrum for a comparison. According to the Travis county Appraisal District, the 2011 total tax rate is approximately 2.4%. Take a homeowner who lives in a $250,000 house in Austin. The homeowner’s tax burden is $6,000 a year. Based on the proposed sales tax rate of 18%, the increase is 11.75% above the current sales tax rate of 6.25%. They are already paying 6.25% in sales tax, so they would only suffer the 11.75% increase in new sales taxes. Based on the 11.75% increase, this homeowner would have to spend approximately $51,000, in order to equal the $6,000 he was paying in property taxes. This household may spend $51,000 per year on consumables, but not likely, so they would see their tax burden go down significantly. This is just a $250,000 house, so one can see how the divide would grow as the property values increase.

Since homeowners currently pay the school and city taxes, they are most likely the ones to decide on issues regarding the taxes which affect the schools, but renters have kids too. A good solution might be to keep the current property tax system for now, and implement a small sales tax to supplement property taxes. Over time, the divide between the two tax sources could be balanced out, and both homeowners and renters can be a part of the decision process regarding school taxes, and neither side would be robbed or become fat in the wallet overnight.

What do you think?