Texas Republican propose raising taxes. Here’s why

It’s not often that Republicans in Texas seek to emulate California. But then it’s not often that Republicans in Texas advocate for a tax increase.

That is exactly what the state’s GOP leaders are doing this week: calling for legislators to support a sales tax increase that would help fund a decrease in property taxes. It comes after years of mounting pressure from voters to both increase state funding to public schools and lower property taxes, which provide the bulk of public education funding in Texas. The proposed “tax swap” solution has sparked a wider debate around Republican values and how to best exercise the fiscal conservatism Republicans have, for decades, heralded as the key to prosperity.

No state has embodied that fiscally conservative ideal as much as Texas, but as legislators here try, again, to reconcile the demand for increased education spending with the demand for property tax relief, the so-called “Texas model” of low taxes and small government is being tested like never before.

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While the state is far from an economic crisis, some see the current stand-off as evidence that the Texas model has run its course and that more state investment in public services is needed. For some conservatives, the stand-off shows the need for a stronger commitment to fiscally conservative principles, lest Texas join Kansas, Louisiana and other conservative states that saw tax cuts backfire, leading to Democratic takeovers and tax increases.

Politically, with Texas Republicans likely to face both primary challenges from the right and a motivated Democratic turnout in upcoming elections, the consequences could be significant.

“Republicans govern on these big bright lines, and if you cross it you’re going to run afoul of many in the party who see tax increases as abhorrent regardless of how they come around,” says Brandon Rottinghaus, a political scientist at the University of Houston.

Texas “is in better shape than other [conservative] states have been that have been forced to raise taxes,” he adds. But it also has “so many ways to limit how they raise and spend revenue that it’s very hard to increase it when they need to. [And] that’s been a problem for Texas government for a long time.”


The Texas legislature is considering two bills that would increase the state sales tax by 1 percentage point, with the resulting 7.25% rate equaling California’s as the highest state sales tax in the country and raising about $5 billion to lower property taxes. Only eight states have higher property taxes than Texas.

In a joint press conference Friday with Gov. Greg Abbott and Lt. Gov. Dan Patrick, Dennis Bonnen, the Republican speaker of the House, said that “Texans are sick of small ball.”

“Texans want to open up a property tax bill and see that it is lower and not have to squint to notice,” he added.

This is the last week in which the state House can pass bills, but at the moment, neither looks likely to pass. Most Democrats in the legislature are opposing the tax increase, a situation “which has left many of us feeling like hell has actually frozen over,” said state Rep. Donna Howard, an Austin Democrat, in a press conference this morning.

In particular, Democrats say moving the tax burden from property to sales would have a disproportionate impact on lower income Texans, a so-called “regressive” tax. Under one of the tax swap bills, Texans earning less than $100,000 a year would pay more than they do now,while those earning more than $100,000 would pay less, according to an analysis by the state’s legislative budget board. (Some Republicans dispute that analysis.)

Another concern is that sales taxes are volatile, tied to consumer spending that can fluctuate year over year.

“It’s not a reliable source of revenue for funding public education,” says Dick Lavine, a senior fiscal analyst at the Austin-based Center for Public Policy Priorities. “Those kids are going to be there every single year, and there’s always more of them than in the year past.”

Property taxes provide about half the funding for Texas public schools, a share that has been growing as direct state investment has been declining. That imbalance is at the root of the school finance and property tax reform debates here, but that low state investment is not just limited to public education, according to Mr. Lavine. Spending on infrastructure has also declined, along with spending on mental health care and child protective services.

“At some point Texas is going to have to meet the needs of its people in the 21st century,” says Mr. Lavine. “At some point you can’t go on claiming your success is based on low taxes and low services. That time has passed.”


Republicans coming out against the tax swap proposal are doing so for much different reasons.

Not only is voting for any kind of tax increase politically risky for Republicans, but some believe “you don’t need to raise taxes to lower others,” says Professor Rottinghaus.

State Sen. Paul Bettencourt, a Houston Republican, is one of them. “It doesn’t matter if it’s income tax, property tax, sales tax, or whatever tax, I’m not voting for an increase,” he told the Houston Chronicle.

He is also skeptical because tax swaps have not often worked. In 2006, the Texas legislature reduced property taxes by increasing some taxes on businesses. While there was some short-term relief, property taxes increased again soon after. New Jersey and Connecticut also both approved sales tax swaps, but neither could sustain the savings for more than a few years.

“It’s just very difficult to do a state-for-local tax swap without having winners and losers,” says Jared Walczak, a senior policy analyst at the Tax Foundation.

Some conservative groups say the current stand-off over how to offset lower property taxes is a result of the state government progressively spending outside its means, a leftward trend that needs correcting. If Texas kept its spending in line with population growth and inflation, billions of dollars would be freed up that could be used to lower property taxes without an offsetting tax increase, according to the Texas Public Policy Foundation (TPPF).

Furthermore, reining in spending would help Texas avoid the backlash experienced in Kansas and Louisiana. Both states made dramatic tax cuts that later proved unpopular, leading to electoral defeats and tax increases. While those states didn’t pair their tax cuts with an offsetting tax increase, the lack of “fiscal restraint” concerns Vance Ginn, senior economist at the TPPF.

“We would have to come back and raise taxes or cut spending,” he adds. “There would be more difficult decisions to be made later if fiscal restraint isn’t practiced today.”

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source: yahoo.com