Property Tax Easy to Hate, Tough to Mess With

Some officeholders have raised the idea of replacing Texas' property tax with a larger sales tax. But that could create some new fiscal challenges.
Some officeholders have raised the idea of replacing Texas' property tax with a larger sales tax. But that could create some new fiscal challenges.

The thing about your property tax bill isn’t just that it is big — that, it is. The irritating thing is that if you’re a homeowner or own property for rent, you see it as a lump sum.

Sales taxes take lots of money out of the average Texan’s wallet, but they don’t come in at the end of the year in a single bill. You get to see your income tax as a single number every April 15, but most people have already paid most or all of that by the time they see it. And unlike your income tax return, your property tax bill includes what you paid last year — so you can see how much it increased.

The tax on property is the biggest source of funds for school districts in Texas, which get 52 percent of their money there, according to a recent report. And with school districts going to court against the state in October to argue about school finance, the whole system — from property taxes to state financing formulas — is up for argument.

Property taxes are easy to hate, and politically dangerous to mess with.

Sales taxes are based on what you spend. Theoretically, you can control the consumption tax by controlling the consumption. Income taxes float with your income. Make more, pay more. Property taxes change as a result of a kind of black magic.

The value of your house is based on the prices agreed to by nearby buyers and sellers. It is mathematical and looks precise, but it’s not science. If it were based on something other than art, there would be no such thing as an appraisal board where you can try to bargain your way out of higher taxes by arguing with the value they put on your humble homestead.

Commercial property appraisals are based on any number of things — price, income, development value. And commercial property owners have less political leverage, because homeowners outvote them.

Property taxes are built on this bed of negotiation and disagreement, and are just complicated enough to seem unfair on top of that. Property owners with cows and hay get a break (even if they’re in cities and have been able to wrangle agricultural exemptions). Veterans and elders get breaks. Homeowners get a break that other property owners don’t get.

It’s easy to say property taxes should go, and some officeholders have suggested replacing them with a bigger sales tax. The property tax, they say, is a way of charging people rent on property they already own.

That’s a solid applause line. But a study done by the former deputy comptroller Billy Hamilton has revealed some nasty math.

State sales taxes, set at 6.25 percent in Texas, brought in $21 billion in 2009 (local sales taxes can add 2 cents to that overall rate, and are not included here). State property tax collections — all the local property taxes added together — brought in $36.2 billion that year. Hamilton says it would take an additional 11.6 cents on the state sales tax to replace those local property taxes: The state rate would then be 17.85 percent, and the locals would presumably still be allowed to charge their 2 cents for cities, hospitals, transit systems and such.

It could be a lot worse, and it is, in most places. The per capita state and local tax burden in Texas is low — the Tax Foundation, a nonpartisan tax research outfit in Washington, ranked the state 45th in 2009, with state and local taxes coming in at $3,197 per year. The national average for that year was $4,160. That’s 7.9 percent of the average per capita income here, compared with 9.8 percent nationally. The numbers don’t include federal income taxes.

Property taxes are higher here than in other states, partly because most other states also have personal income taxes and Texas does not. It’s really a choice, first, of how much things will cost and, second, of how to pay for them. The cost of government is lower here, on average, but the mix puts a heavier load on property taxes.

There’s one other reason state lawmakers can like the current setup: They don’t set the local property tax rates on the public school finance system they’ve designed. That’s someone else’s fault.

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