The Statesman asks “Would Dan Patrick’s tax plan lower your taxes?”
Efforts to shift toward sales tax in lieu of property and income taxes have in recent years gained momentum in Republican-led states — even as economists warn that this sort of tax reform is likely to harm the majority of taxpayers.
Economists point out that sales tax is highly regressive, meaning its net result is savings for wealthy people, who enjoy a lower tax rate overall; poor and middle class taxpayers, however, pay more tax as a proportion of their income and thus bear a heavier burden for funding government services.
Texas’ tax system is already considered regressive because it doesn’t levy a personal income tax and instead relies heavily on sales tax, the state’s single biggest source of nonfederal income, $27.4 billion in fiscal 2014.
Counting both sales and property taxes, Texans who earn less than $19,000 a year are taxed an average of 12.6 percent of their income, according to a 2013 study by the Institute on Taxation and Economic Policy, a nonpartisan think tank in Washington.
The institute found that a family earning $32,000 to $52,000 — the middle 20 percent — will be taxed an average of 8.8 percent of their income. The top 1 percent of earners, those earning $437,000 or more, are taxed a much lower average of 3.6 percent.
Matt Gardner, executive director of the nonprofit institute, says this disparity will likely worsen if sales tax is increased to buy down local property taxes, as Patrick has proposed.
“Unless you have some way to offset the increase in sales tax, it’s pretty clear that this is going to hurt low-income people,” Gardner said.
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The Lone Star Card piece of Patrick’s plan appears similar to a failed 2005 proposal, which was nixed from tax reform legislation that cut property taxes paid to school districts and swapped that funding with state sales taxes. This is the measure that allowed the state to cut $5 billion to public schools in later years and spurred a protracted court battle between school districts and the state (a state district judge, citing several reasons, ruled for the second time in August that this financing scheme unconstitutional).
The nixed piece of that plan was a proviso to raise the sales tax rate from 6.25 percent to 6.75 percent, along with a package of other excise taxes and tweaks that would have replaced $4.3 billion in property taxes with $4.8 billion in other taxes.
In the same way that Patrick touts his tax plan would either result in a net neutral or net reduction in total taxes paid by Texans, the Legislative Budget Board in 2005 calculated the fiscal impact of that swap would result in a “net reduction to individuals.”
But beneath that neutrality — the total amount of taxes paid wouldn’t increase — is a stark disparity in distribution. Those with annual incomes in the low $10,000s, the board calculated, would have paid $8.1 million more in taxes by 2007. Middle-income taxpayers, those earning from the $40,000s to low $50,000s, would have paid $151 million more.
Those at the highest income level, $140,000 a year and up? They would have seen a $212 million decrease in their tax liability.
Remember the Legislative Budget Board analysis of that 2005 tax swap plan? It has the answer to the question posed above: Unless you’re in the top five percent, your taxes will be going up. There’s nothing complicated about this. In any “revenue neutral” tax plan, some people win and some people lose. Is anyone surprised at who the winners and losers are in Dan Patrick’s world? I guarantee, this will still be the case when he inevitably comes up with a plan that gets scored as a net tax cut. It will be a big cut for a small number of people, and at best a wash if not an outright increase for everyone else. It doesn’t matter that he hasn’t specified any details yet. They don’t really matter to him anyway – it’s the big picture that counts. This is who he is, and this is what he wants. It’s right there in plain sight.