AUSTIN — Texas’ top three political leaders — Gov. Greg Abbott, Lt. Gov. Dan Patrick and House Speaker Dennis Bonnen — threw their support Wednesday behind a proposal to increase the sales tax by one percentage point to lower property taxes across the state.
But that’s only if lawmakers agree to limit future local property tax increases.
The proposal would raise the state’s sales tax from 6.25% to 7.25%, generating billions of additional dollars annually for property tax relief, if voters approve a constitutional amendment. But the idea will be a hard sell to Democrats because the sales tax is considered regressive, meaning lower-income Texans end up paying a larger percentage of their paychecks than higher-income Texans.
“Today we are introducing a sales tax proposal to buy down property tax rates for all Texas homeowners and businesses, once Senate Bill 2 or House Bill 2 is agreed to and passed by both Chambers,” said a joint statement from the three Republicans. “If the one-cent increase in the sales tax passes, it will result in billions of dollars in revenue to help drive down property taxes in the short and long term.”
Neither chamber has passed HB 2 or SB 2, which would require voter approval of property tax increases over 2.5%.
The House Ways and Means Committee was scheduled to take public testimony on the House’s sales tax swap proposal this week but delayed hearing the bills. Rep. Dan Huberty, R-Houston, who authored House Joint Resolution 3 and House Bill 4621, is considering changing the legislation to use a fraction of the additional money generated by the sales tax for public schools to get more Democrats on board.
The bills are intended to provide another revenue source to help significantly cut local school property taxes, which make up more than half of the local property taxes levied in Texas.
Denton Mayor Chris Watts said the move appears to address the problem that would be created by the proposed property tax cap, which affects schools differently than cities.
“If the state is picking up the difference and it reduces the local portion of school taxes, then it’s great,” Watts said, adding, “But as most people know, there’s an argument to be made that sales tax is a regressive tax.”
Watts said he didn’t have a lot of information about the proposal yet. Erica Pangburn, president of the Denton Chamber of Commerce, said there wasn’t enough information to make an official comment yet, so the chamber isn’t ready to take a position on the proposal.
Mia Price, president of the Denton school board, also expressed some uncertainty about the proposal, but she thinks it will ultimately help schools.
“I’m so far optimistic about the impact it will have on our district,” Price said. “I feel like this is a very big step in a very positive direction.”
If passed, she said the bill might bring much-needed property tax relief.
The district’s budget is currently unclear due to legislative debate over HB 3 and its accompanying Senate bill. HB 2 is another variable muddying the waters, but she said the board is used to dealing with situations like this one.
If the Legislature approves the resolution, the constitutional amendment would go to voters to approve in November, and if voters sign on, the tax rate change would apply in January 2020.
The idea is picking up solid — but not unanimous — support from conservatives. The Texas House Freedom Caucus, the hardline conservative faction of the House, said in a statement that it would back the idea if all the additional money went to property tax cuts, and if lawmakers also approve a 2.5% revenue cap on school districts. The caucus also wants to make sure the Legislature passes a bill requiring other local taxing units to get voter approval for property tax increases above 2.5%.
“There has to be a firm lid on local property taxes — including schools — that keeps the growth of property taxes from washing out the benefit you get over time,” said Rep. Matt Schaefer, R-Tyler, a member of the caucus.
Because the tax swap would require a constitutional amendment on the upcoming November ballot, Huberty would need to convince 100 members — two-thirds of the lower chamber — to vote in favor of the resolution on the House floor. If all 83 Republicans vote yes, he’d need 17 Democrats. Some Democratic opposition quickly emerged Wednesday.
“It’s a dangerous idea, one that increases taxes on working families to disproportionately provide tax cuts for corporations and the rich over everyday homeowners,” said state Rep. Ramon Romero, D-Fort Worth, a member of the House Democratic Caucus.
Romero suggested Republicans instead back a bill he filed to double the exemption homeowners are entitled to on their home values for school taxes, from $25,000 to $50,000, which would give an average yearly tax cut of about $325.
Sen. Larry Taylor, R-Friendswood, has filed Senate Joint Resolution 76 and Senate Bill 2441, which would also use an increase in the sales tax to lower school district tax rates. The Senate would need 21 votes to pass the resolution.
Raising sales taxes for public education appears deeply unpopular among voters, with 74% of Texans in a recent University of Texas/Texas Tribune poll reporting that the state Legislature should not consider increasing sales taxes to boost public education money. In fact, increasing the sales tax was slightly more unpopular than creating a state income tax, which 71% gave a thumbs down in the poll.