Why ‘Tax Relief’ Is And Always Will Be Bogus In Texas
By Vince Leibowitz on May 13, 2006 in Texas Public Policy & Taxation | | Sphere: Related Content |
I had intended to write this the other day, but didn’t. This morning, though, I read a piece over at Pink Dome that my post from last night might have helped inspire and it, in turn, inspired me to finally sit down and do this post. The post at Pink Dome notes:
The rush to do something outweighs the motivation to do something right. We aren’t suffering from incompetence or evil agendas, we are suffering from laziness.
In the years since the Republicans have taken over the Legislature, this has grown—more and more—to be the case on every issue whether it is this one, tort reform, insurance reform or budget cutting.
While this is only one reason that I believe what I am about to talk about, when I read what Pink Dome wrote, I realized this was icing on the cake and a contributing factor and that it gave me what was needed to round out my little theory.
I’m about to say something that is dangerous for a Democrat to say, especially since we’re already considered so pro-tax (which is an incorrect assumption), and I’m sure I will catch hell for it from some of my readers, but here goes:
‘Tax Relief’ in Texas, especially as managed by the Lege this session, is and always will be a truly bogus concept.
Now, if you Republicans have scooped the load you likely just dumped out of your drawers upon reading the previous, and put away your AKs, and if my fellow Democrats will stop yelling, “Shhhh! You can’t tell anyone that! The Republicans will kill us,” I shall proceed.
And, I will ask that you bear with me, because this will be a lengthy post.
I can’t remember the first time I remember “tax relief,” in context with Texas elections, but I believe it became such a political hot-button issue, but I do believe it was in the post “Share The Wealth/Robin Hood/Chapter 41″ world as school districts started to levy increasingly higher property taxes.
First of all, when people in Texas say “tax relief,” at least up to now, they have meant “property tax relief,” as we have no state income tax and our business taxes to date have been fairly weak. I’ve noticed that, in the last four or five years, pols have actually started to clarify this by saying that Texans want “property tax relief.”
Here is what Governor Perry had to say about the subject around the time of the roll-out of the TTRC plans:
“Texans want property tax relief, and they want it now. In Texas we pay some of the highest property taxes in America, and millions of homeowners and employers pay the price,†Perry said. “Property taxes that are too high cost Texans jobs when businesses decide to go elsewhere, they cost consumers money in terms of higher prices, and they cost millions of Texas families the dream of owning a home of their own.â€
Now, when someone, including the governor of this state, says “property tax relief,” you would assume that they mean across-the-board property tax relief.
Republicans sound like they want across-across-the-board property tax relief, but the fact is when they’re talking about property taxes, they are talking about one thing and one thing only: property taxes Texans pay to keep public schools in operation.
This is catch phrase “property tax relief,” as used in political vernacular today—especially by Republicans—is a misnomer because it doesn’t refer to all property taxes, only those for public schools. Incidently, it is this type of property tax over which both the Legislature exercises the greatest amount of control, and which the most “special interest groups,”—from seniors with no children to anti-tax wingnuts—complain the loudest.
Why else is property tax relief a “misnomer?” Because, every time (or at least better than 95 percent of the time) when the Republicans complain and/or try to do something to affect “property tax relief,” it is directed only toward property taxes levied to fund public education in the state of Texas.
There are numerous other property taxes out there, though. Every inch of soil-covered ground in Texas is blessed with a levy of a minimum of two property taxes: independent school district taxes and county taxes.
I’m not for certain exactly what portion of the state’s land area of 261,797 miles lies within the bounds of an incorporated town, villiage or municipality with the capability to levy taxes of some sort, but there were 1,193 levying taxes as of 2002. Given that only 13 percent of the state’s population lives in a ‘rural’ area, however, I think it is safe to say that at least a simple majority of the property in Texas is subject (or potentially subject to, as not all cities levy) to yet another property tax.
Then, you have community/junior college districts (64 as of 2000) water districts, rural fire and EMS districts, crime control districts, hospital districts, and a myriad of other such special purpose districts and, while about 75 rely exclusively on a sales tax to survive, 1,179 special purpose districts in Texas levied $2.4 billion in property taxes in 2000.
By comparison, there are 1,134 school districts in Texas levying a property tax, and those 1,134 school districts levied $13.4 billion in 2000. By contrast, the school districts aren’t—like municipalities, the majority of counties, and many special districts—allowed to collect any other tax revenue including and especially sales tax, and the value of tax exemptions schools were constitutionally mandated to give in 2000 was valued at $112.2 billion dollars—that’s roughly eight times greater than the districts’ actual levy, which, for property tax wingnuts, should mean something.
To recap: That’s 254 counties, 1,034 school districts, 1,193 incorporated cities, and over 1,200 special-purpose districts—all or nearly all—with the ability to levy a local ad velorem property tax.Yet, every time the Republicans shout about “property tax relief,” it is the 1,034 school districts that are targeted—not cities, not counties, not special purpose districts.
Yes, there are a couple reasons the other districts aren’t targeted and I will explain those. However, it is a major misconception that school districts in Texas have the ability to levy greater taxes and cause a greater tax burden on its citizenry than other government entities. Before we look at why the other taxing entities aren’t targeted, let’s look at statutory and constitutionally-mandated property tax caps for the various and sundry government entities eligible to tax.
Cities, Villiages, Towns & Other Incorporated Municipalities: Cities with a population of 5,000 or less have a manmdated cap of $1.50 per $100 valuation. Cities with a population over 5,000 can go up to $2.50 per $100 valuation, unless they are home rule, whereupon the city charter may mandate a different rate (equal to or lower).
A “Type B” General Law City (very small towns) can levy only a twenty five cents per $100 valuation.
Take note here, that many municipalities may tax up to $2.50 per $100 valuation—that’s double the allowable tax rate for any school district, no mater how large it is. And, as far as I know, the $2.50 and $1.50 caps for various cities do not, as they don’t for ISDs, include any “I&S” or “Interest & Sinking” tax rate to satisfy debt service on general revenue bonds or certificates of obligation.
Counties: Texas’ 254 counties may tax $0.80 per $100 for general purposes, another $0.15 for special roads and bridges, another $0.30 for optimal road/flood control. And, on top of that would come debt service for construction on new facilities, etc., as funded by general revenue bonds or certificates of obligation.
Special Districts: Special districts vary widely. Rural Fire Prevention Districts, for example, may levy $0.03 per $100 valuation while hospital and airport SD’s may levy $0.75 per $100, and community college districts may go up to $1.00 per $100.
Now that we’ve looked at the taxing entities, let’s talk about why school districts are chief among taxing units to be attacked with the concept of “property tax relief.” For one thing, school districts more than any other taxing unit in the state, are prone to “maxing out” their base tax rate, aka the Manitainence and Operations (M&O) tax rate and then, as a result of explosive student growth, piling upon that additional pennies for debt service for new facilities: the Interest and Sinking (or I&S) tax rate to fund the issuance of general revenue bonds for new school construction.
There are a couple reasons the other districts aren’t targeted, and they are directly related to the reason school districts are forced—more so than other taxing units—to max out their M&O tax rates.
Municipalities, special districts (excluding community colleges) and counties are all eligible to benefit from a variety of other taxes that, while very regressive in nature, aren’t always thought of as a ‘burden’ in much the same way property taxes are.
The sales tax is a prime example of this. Special districts (crime control districts, development districts, health services districts and even transit authorities) may levy an additional sales tax percentage over and above the state sales tax rate of 6.25 percent. Local taxing jurisdictions from cities and counties to SPDs and transit authorities may impose additional sales taxes up to two percent for a total maximum combined rate not to exceed 8.25 percent.
Cities may add a between a quarter percent and two percent depending on the local sales tax rate for various needs even including a special half-cent sales tax for economic development, for a combined total of state and local taxes not to exceed 8 1/4 percent.
Counties, though some counties didn’t get in on this when the Legislature made it allowable more than a decade ago, may add an additional half percent to one and a half percent depending upon their local tax rate for a combined total of state and local sales taxes which may not exceed 8 and 1/4 percent.
Transit authorities may add anywhere from a quarter percent to one percent depending upon their local tax rate, not to exceed a combined total of state and local rate of 8 and a quarter percent.
SPDs may go anywhere from one-eighth of a percent to a full two percent depending on the local property tax rate.
Special Purpose Districts - 1/8% (.00125) - 2% (.02), depending on local rate. Texas special purpose districts have the option of imposing an additional local sales tax for a combined rate not to exceed eight and a quarter percent.
On top of all of this, cities, transit authorities, hosital districts and counties benefit greatly from “user fees” and other locally generated funds.
Cities and counties may benefit from a variety of user fees from animal shelter fees, building permit fees, recording fees, garage sale permit fees, inspection fees, health permit fees, late fees on municipally-operated water system bills, etc. While this may not generate a lot of money in some cities, it generates a tremendous amount of revenue in others. These are fees school districts aren’t entitled, eligible, or able to collect.
In addition to user fees, you have penalties (mainly criminal) from which cities and counties also benefit. Every time you receive a traffic citation in a county or within the confines of a municipality with a police department and a municipal court, a portion of the fines and fees you pay go back to that entity’s treasury. While I will grant that it is a fairly small portion relative to the fine you may pay for, say, speeding (as the rest goes to the state’s general fund or specific-purpose funds), that is, once again, revenue that school districts aren’t entitled, eligible, or able to collect.
Aside from user fees, you have consumption and use taxes (mixed beverage (liqour by the drink) tax, hotel/motel occupancy taxes, rental car taxes, and a few other taxes) that can partially or entirely benefit cities, counties (in a more limited way), and special districts.
Even community college districts are in a better position than local ISDs because they charge tuition fees and students service fees (and even parking permit and traffic citation) fees that, once again, school districts aren’t eligible, entitled, or able to collect. (Granting, again, that in limited circumstances, school districts may charge a small parking permit fee for students, may generate reneue from vending machine contracts or, in limited circumstances, charge tuition to out-of-district transfer students as provided for within the statutes).
So, while someone’s bill for school property taxes may be double their city tax bill, it’s because that city tax bill is likely offset by sales taxes you pay by consumers every time a consumer (not just ones living in that municipality) buys non-exempt items (primarily non-food items) within the confines of the taxing entity.
Granted, a hefty portion of the state sales tax levy goes to fund public education, but the remainder funds other state services. The sales tax makes up for (as of 2004) 55 percent of the state’s general revenue dollars eligible to be appropriated. Education appropriations consist of 77 percent general revenue dollars (again, 2004 numbers from here), for a dollar amount of $23.1 billion of the total $29.9 billion in education appropriation dollars made by the state. Keep in mind, though, that 55 percent of the “general revenue” dollars appropriated for education (again, 2004 figures) come from the Foundation School Fund, which is part of the “general fund” dollars.
As of 2004, the Foundation School Fund (made up of the interest and dividends from the Permanent School Fund and 1/4 percent of the gas tax) provided 17.08 billion toward that overall total of $29.9 billion of ‘general revenue.’
The prevailing myth that Texans are “overtaxed” or “taxed to death,” contributes significantly to the boondogle of ‘property tax relief’ and the impact that the property tax relief movement has had on school districts.
Even the right-leaning Tax Foundation (famous for calculating “Tax Freedom Day,” paints Texas in a better light than the Republican politicans running the state—many of whom seem to become infected with some sort of communicable disease that makes them immediately assume Texans are drowning amidst a sea of taxes and begging for mercy the day they announce they are running for office.
For one thing, Texas is one of only six states with no personal income tax. We’re one of four states that (at present) levy neither a corporate income tax nor a personal income tax.
We are ranked seventh nationally out of the 50 states in having a tax climate that is favorable to businesses, in spite of the complaints about sky-high property taxes.
Considering only the general 6.25 percent sales tax and not the local increment additions, the state is above the national median, but falls squarly in the middle of other states, ranking only 25th nationally in terms of the amount the state collects per capita in sales taxes. Of course, since that is a regressive tax, it effects different income brackets in different ways. Nevertheless, 25 other states are in a worse position than we are. Our twenty cent a gallon gas tax again ranks us dead in the mittle at 25th nationally.
Keep in mind that, while the Tax Foundation does give the state a very high ranking in terms of property taxes, Texas is one of a limited number of states that assesses no statewide personal income tax, no statewide corporate income tax, and no state-level property tax. A combination of any or all of these taxes would offset our standing in this area.
Texas ranks 11th overall in the amount of local government property tax collections per capita at $1,129 per person. Proving that the state’s property tax system hurts Texas taxpayers worse than a personal income tax might (and as the Center for Public Policy Priorities and others have shown time and time again), the state ranks sixth nationally in terms of how much local governments collect per $1,000 of a taxpayer’s personal income, which is $38. Of course, when you take into consideration we don’t have a state property tax, Texas does drop in the ranking (to 13th from sixth when you look at state-local property tax collections) and from 11th to 13th when you look at it as a percentage of income.
This, at long last, really helps get to the full and overall point, and the reason I’ve spent most of my Saturday afternoon writing this: property tax relief is bogus and a sham.
Look at those numbers from the tax foundation: certainly Texans rank high-as-hell in terms of property taxes because, aside from sales and use taxes, the state levies few other taxes which effect the majority of its citizenry.
Adding to the “bogusness” of property tax relief is that, every time politicians talk about offering forth property tax relief, it is in the concept of a deceptive shell game of sorts, where there isn’t a substantial or effective replacement for the amount of money the government bodies (specifically and, basically only school districts) see fly out the window.
The TTRC’s proposals are a prime example of the shell game of property tax relief. The TTRC proposals as amended and adopted by the Legislature will last for about half a biennium before they fall apart and require additional tax increases. But, since the proposals were designed to bring relief from property taxes, the only place to raise taxes are on further regressive taxes like sales and use taxes, and consumption (including many “sin”) taxes.
The concept of the tremendous need for property tax relief is bogus partly because of the way property taxes are paid by the taxpayer. With an income tax or a sales tax, a use tax or a consumption tax, you pay as you go, as you purchase, or as you earn income (deducted often by your employer and not even you). With property taxes, there is no “pay as you go.” Your property tax bill comes due for all taxing entities in which you reside or own property at once, and you see a high number of several hundred to several thousand dollars and you lose fecal control in your pants and start demanding property tax relief before you can even find a new pair of drawers. Even if you underpaid your income taxes throughout the year and owe Uncle Sam money on tax day, it is a result of income earned over and above what you anticipated, because you don’t have the deductions you thought you would, or because you underpaid during the year.
With property taxes, your tax bill is just “there,” and it’s hard to say you are having to pay what you paid because of any fault of your own. If you underpay federal income taxes throughout the year (claim the wrong number of dependents or make an error in calculations), that’s kind of your fault (to a degree) that you’re having to pay in; otherwise, what you paid in via incriments throughout the year would have sufficed in many (perhaps not most and certainly not all) cases.
With property taxes, you get a bill and it is due. There is no paying a little every week or every month or every time you “use” the property to offset the tax. That it is due in a lump sum is, in my opinion, one major reason people scream for property tax relief. If you were paying it out at X number of dollars a month or less, you might not realize how much you were paying; it’d be just like another bill coming due.
The fact of the matter is as follows: before long, the people of Texas have to wake up and realize the time for a personal income tax is at hand, and that such a tax would both adequately fund the state’s biggest expense (public education), and provide enough relief from property taxes and other taxes over time that the overall tax relief with a state income tax is greater (meaning Texans pay less overall in taxes) than the current tax system without a personal income tax, even with the additions of the numerous taxes from the TTRC’s plans.
From the Center for Public Policy Priorities:
Only a personal income tax can significantly reduce reliance on property taxes – cutting the school operations tax from $1.50 to $0.50 – while providing adequately for education – over $5 billion annually. Alternative tax proposals are not able to reduce property taxes as much or fund public education as well. An expanded business tax by itself cannot raise enough money. A higher sales tax would be volatile and regressive. An income tax would reduce taxes on the middle class and benefit the economy. Public opinion polls show that Texans are open to considering a Texas-style income tax.
Furthermore, an income tax would go a long way toward making the state’s overall tax system less regressive.
We rank 5th in having the most regressive tax system in the nation. The one-fifth of Texas households with the lowest incomes (under $22K per year) pay almost three times in taxes (as a percentage of household income) than the one-fifth of households with the highest incomes (in excess of $97K per year).
Once again, though, as with any tax, it is the uber-wealthy, not necessarily those earning combined incomes of at or around that $97K, who will complain about a state income tax, and the uber-wealthy who pour fourth millions upon millions of dollars to elect and re-elect the present, tax-phobic Republican majority.
The Bob Perry’s and James Leininger’s will whine that they earned that money and they should keep it. But, even they don’t realize that a modified tax system including a personal income tax would benefit them more than the current system which relies so heavily on the property taxes they are also demanding relief from.
Property taxes may seem high, but the cry for “property tax relief” is largely bogus because most Texans aren’t paying a significant amount in other state taxes as the state has no personal income tax. Local property taxes may look astoundingly high compared to the rates in other states, but even the cry that our local property taxes are too high is bogus in a state with no personal income tax and no statewide property tax.
Popularity: 10% [?]
Do you know that you can 
1 Trackback(s)
You must be logged in to post a comment.