Analysis: When It Comes to Tax Cuts, Does Size Matter?

The House and Senate have some differences over which taxes to cut, but their plans have one thing in common: When they trickle down to average taxpayers, the benefits are small. 

Steven Depolo

What the Texas Legislature calls tax relief looks like chump change when you break it down, raising this question: How much do taxes have to be cut to turn the heads of Texas voters?

In Austin, they’re talking about tax cuts in the range of $4.5 billion, give or take $100 million or so. That is a serious amount of money. But there are a lot of people and businesses in Texas, and that kind of money doesn’t go as far as you might think.

The Texas Senate wants to cut property taxes by giving people a bigger homestead exemption. Its formula would roughly double the amount of the average homeowner’s current exemption, and that average homeowner would get an average tax break of $206 per year.

That’s 56 cents per day, a couple of sodas or cups of coffee per week. And it would only go to homeowners, so renters and businesses would have to scrape up their own $206. Businesses, especially small ones, would get some attention in the form of a franchise tax cut.

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Some would-be tax cutters in the Texas House want to cut sales taxes by a half-cent, from the current 6.25 percent to 5.75 percent (you probably pay more than that because local governments can — and most often, do — add up to 2 more cents to the levy). This tax cut would put less money into the average taxpayer’s pocket, because it would apply to everyone, including businesses. The annual benefit coming to the average adult Texan from a half-cent cut in the sales tax? About $67.34, based on the state comptroller’s sales tax estimates. If you calculate the benefit per household instead (a closer match with homestead exemptions), it’s $149.93 per year, which is better, but still smaller than the property tax cut.

(At least three people in Austin are reaching for their calculators right now, so here are the numbers for the current 2014-15 budget cycle: $56.5 billion in sales taxes, 59 percent of which are paid by consumers, puts the revenue from half a cent at $1.3 billion, divided by 19.8 million adults. We now return to our regularly scheduled program, already in progress.)

Neither set of tax cutters is exactly remaking the average family budget here. Many of the lawmakers who will vote on this will probably hit lobbyists up during the legislative session for at least one meal costing more than the tax cuts that have been proposed.

More to the point, it’s hard to believe that any voter would be strongly motivated by either $206 in savings buried in their mortgage payments or in $150 saved pennies or less at a time over the course of 12 months.

Gov. Greg Abbott has directed his attention to business tax cuts under consideration by both the House and the Senate. They have different ways of going about it, but both have proposed cuts to the business franchise tax, either lowering the rate charged or trimming the number of businesses on the hook for that tax. Abbott hasn’t publicly picked one plan over the other, but did put down his marker by saying he would veto a budget that does not include a business tax cut.

A franchise tax cut has the argument of economic stimulation on its side in a comparison with the cuts in property and sales taxes. Cutting business tax rates might win over some bigger businesses that are opposed to simply letting small companies out of the tax.

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But the politics favor the consumer taxes. The property tax is the most unpopular of all, according to a recent University of Texas/Texas Tribune Poll. The business tax, by comparison, is unknown to many voters. The sales tax doesn’t generate voter vitriol like the property tax does, but it is a state tax and the property tax is not. That means the state can cut sales taxes without spending money; cutting property taxes requires the state to write checks to school districts to replace the revenue it is taking away.

Lawmakers who have been in office and/or paying attention to state government for more than a decade also know of another problem. In 2006, the state tried to deliver property tax cuts averaging $2,000 per homeowner.

That sounded great, but property values went up, property taxes went up and voters got mad when the money they were promised didn’t show up.

This time, lawmakers are promising cuts too small for many voters to notice at all.

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