Friday, April 17, 2015
Whose taxes should we cut? | Last Word
Here’s a headline for you: Class warfare breaks out in Texas Legislature.
Okay, “warfare” may be a bit of a stretch.
Class skirmish might be better, only because the stakes aren’t very high.
And it’s not between Democrats and Republicans.
It’s between Lt. Gov. Dan Patrick’s Senate and Speaker Joe Straus’s House.
Both are overwhelmingly Republican, and both are committed to cut Texas taxes by billions of dollars.
But the House and the Senate are arm wrestling over who should get the tax cuts.
The Senate wants to give property tax breaks to homeowners by raising the homestead exemptions on school taxes.
The state would then reimburse the school districts.
The amount of tax relief per homeowner would be about $200 a year.
For most homeowners, that would mean lowering their monthly mortgage bill by about $17.
I told you the stakes weren’t very high.
One advantage for homeowners: Unlike the current homestead exemption, the new law would index the amount to the statewide median value of a home.
So the value of the tax cut would go up with inflation.
But for the more than four and a half million renters in Texas, this tax cut would be meaningless.
Rental houses and apartments don’t qualify as homesteads.
So there is no tax cut for landlords to pass on to tenants.
About one in six Texans would get nothing under the Senate plan.
The House plan, crafted by Ways and Means Chairman Dennis Bonnen of Angleton and backed by Speaker Straus, leaves no taxpayer out.
Not homeowners, not renters, not illegal aliens or even Easter-time visitors from Mexico.
Instead of cutting some property taxes, Bonnen would cut the tax nobody in Texas escapes: the sales tax.
Again, the tax cut would not be huge.
The state sales tax would drop from 6.25 percent to 5.95 percent.
For the average family of four the reduction would be about $172 a year.
But everyone would get something.
And like the proposed Senate cut, it is linked to inflation since it would grow as prices go up.
So which tax proposal is better?
Politically speaking, it’s clearly the Senate plan.
As Senate Finance Committee Chair Jane Nelson said, “I have never had a constituent tell me they want a cut in sales tax – ever. I’ve had lots of constituents come and complain about property taxes.”
What’s more, those apartment dwellers who won’t get anything from the Senate plan – they don’t vote in near the numbers homeowners do.
But if the Senate plan is better politics, the House plan is better policy.
Not long ago, as the Legislature began to rally around the notion of tax cuts, I noted that Texans already rank third from the bottom nationally in the amount of state and local taxes we pay.
But we also rank third from the bottom in how regressive our taxes are.
That’s a fancy way of saying we put a heavier burden on those who can least afford it.
According to figures from the state comptroller’s office, compiled by the Austin-based Center for Public Policy Priorities, the poorest 20 percent of Texans pay 18 percent of their income to state and local taxes.
The richest 20 percent pay slightly less than 5 percent.
The fact that Texas relies heavily on a sales tax to make up for not having a state income tax is a major cause of this fairness gap.
Only Washington state and Florida have smaller gaps.
The miniscule cut in the sales tax would hardly make a dent.
And we would probably all be better off if the tax savings were used for better schools and broader access to health care.
But if the choice is between these two virtually symbolic tax cuts, the House version is better.