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Analysis: Making a Deal on Tax Cuts That Voters Might Not Care About

As they try to agree on tax cuts that are the major obstacle to a state budget, lawmakers could find themselves wishing the cuts they deliver are as big as they sounded to the public.

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The winners of a continuing legislative fight over consumer tax cuts could ultimately be the losers. They’ll have to explain why they are bragging so hard about tax cuts that are so small.

There are competing ideas in the House and Senate on how to give money back to Texans.

The Senate wants homeowners to have larger homestead exemptions from their property taxes, pushing a proposal that would give the average homeowner a break of about $206 annually.

The House wants to cut sales taxes by three-tenths of a cent — to 5.95 percent — for everybody. The average household would save around $90 per year. It’s less if you figure it this way: $40.40 per adult, more or less. That cut would also give a break to businesses, which pay 41 percent of sales taxes in Texas, according to the state comptroller.

The House and Senate have agreed, in principle if not in detail, that they want to cut the business franchise tax. That’s a priority for Gov. Greg Abbott, who has said he would veto a state budget that doesn’t include cuts in that tax. Both the House and Senate are on board with different versions that shouldn’t be hard to reconcile.

But on the other stuff, the chasm remains. Neither tax cut appears to be large enough to prompt average Texans to drop to their knees in thanks, and that could come back to bite the politicians who are promising relief.

The cuts are brag-worthy only until you actually measure them. Then they aren’t big enough to brag about. That's bad politics.

It’s possible that voters won’t call them on it. In 2006 — the last time the state government tried to cut local property taxes — leaders from Gov. Rick Perry on down promised the average homeowner would get a $2,000 break. The benefits were there, somewhere, buried in escrow accounts and appraisal increases and gradually increasing tax rates. But the political benefits dissipated quickly.

The people in Austin felt they had moved the earth — creating the now-unappealing franchise tax to raise the money needed for a massive property tax cut, all while keeping the courts happy. But voters didn’t really notice. 

They might notice pieces of this year’s proposals. Small businesses care a lot about the franchise tax, particularly because of a quirk in its design: They can easily find themselves owing taxes in years when they have no net income. Texas doesn’t have an income tax, and few lawmakers want to change that. So they designed a tax based on business activity that doesn’t take income into account. The short version: The tax is unpopular, especially with small businesses, and they’ve told politicians they’d like to see it cut or repealed.

Noted.

Property taxes are the least popular tax levied in Texas. In a University of Texas/Texas Tribune Poll conducted in February, more than half of the likely voters surveyed listed that as their least favorite tax. They also listed sales taxes as the most satisfactory of all the taxes listed (sales, property, business, sin and motor fuels).

The Senate is obviously getting similar soundings from the public.

But property taxes are levied by school districts and local governments and it’s hard to make changes from the state level — even if you’re doling out far more money than the $4.9 billion available for cuts this year.

Perhaps there’s a way out.

Rep. Dennis Bonnen, R-Angleton, told reporters on Tuesday that he would be willing to drop the fight over sales and property taxes altogether. There are some ways to do that and save face. Other property tax legislation is already in the pipeline. One proposal would require local governments to seek voter approval when property taxes are rising more than 6 percent. Another would require 60 percent supermajorities from local government bodies trying to raise taxes. And if voters are not particularly worked up about sales taxes, they probably won’t notice the disappearance of a $40 cut.

Bonnen might be alone in that settlement sentiment, but he is chairman of the House Ways and Means Committee and the chamber’s chief tax writer.

“I would love to put it all into reducing the franchise tax,” he said. “I am beyond comfortable with that.”

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