The Search for a Less Unpopular School Tax

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.

Some Texans want to kill property taxes. Some want to create a new one.

Right in the middle of a policy debate over whether to swap property taxes for higher sales taxes and weeks before a state district court in Austin hears the latest round of challenges to the state’s public school finance system, it’s still possible that lawmakers will get another look at an issue they put to bed years ago: a statewide property tax.

They would have to repeal a constitutional prohibition against that tax. Voters hate property taxes, and politicians are nothing if not receptive to the whims of voters. The ban went on the ballot in 1982, passed by almost 3-to-1 and that was that.

Except that property taxes are an essential source of money for public schools. There’s no such state tax, but there is most assuredly a local one. The state and its independent school districts are going to court in October — again — to debate the financing of the state’s schools. One argument — again — is that the state capped local property taxes and then required so much local spending that districts have to tax at or near the cap. Because the state sets that cap, and because this is a property tax, school districts are arguing — again — that it functions like an unconstitutional state property tax.

It’s like the instructions on a bottle of shampoo: Lather, rinse, repeat.

 

The school finance lawsuits have a million angles, but this tax raises that key constitutional issue.

One solution would be to replace all or some of those local school property taxes with a statewide property tax — to ask voters to make the statewide tax constitutional. State Sen. Robert Duncan, R-Lubbock, proposed this in 2011 and promised to return to it when the Legislature meets again in 2013.

That might win the state an argument in court, but it is politically poisonous.

Some hate the property tax so much they’ve suggested getting rid of it and increasing the sales tax to cover the difference. Doing so would require a sales tax of nearly 20 percent, according to one recent study. Expanding the base would lower the rate; in a report in 2009, the Texas Public Policy Foundation, a conservative research organization, said a tax on real estate transactions would allow a lower sales tax rate and would be fairer than the current property tax.

A statewide property tax might solve part of the school finance problem, but it’s full of holes. It won’t work if the property appraisals are less accurate in one place than in another. If the industrial plants in southeast Texas are undervalued for tax purposes, the owners of downtown office buildings in Dallas and homes in Laredo will have to pick up the slack. Tax collectors are better in some places than others, creating other inequities. Flaws like those — the Texas Taxpayers and Research Association, a business group, reeled off a long list of them in a report last month — could fuel future school finance challenges.

Even if you work out all of the policy kinks, the politics are perilous. Try asking people at a town hall meeting how they feel about adding the state to the list of governments that can tax property. The second bite at this poisoned apple: Local officials set property tax rates now, and state politicians are insulated from those decisions. Why get rid of that?

Worst, it leaves the essential problem of school finance in place. It’s not so much about where the money comes from — though there is plenty of pressure there. It’s about where the money goes. The state takes money raised in one place and sends it to another.

Either idea — statewide property taxes or a sales-tax-for-property-tax swap — creates pockets of winners and losers. The oil patch that produces big property tax revenues won’t do the same thing if the load shifts to sales taxes. The school district with low property taxes today would have a higher rate under a uniform state system. And so on.

The bright spot for lawmakers is that they don’t have to decide right now. The school finance cases go to court in October. The inevitable appeals will take months more. The next legislative session ends in May 2013 — probably before the courts are finished.

What’s the rush?

 

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