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Texas lawmakers looking for enough money to rebalance the state’s school finance system face an obstacle course: the state’s property taxes are the sixth highest in the country as a percentage of property values, sales tax rates are 12th highest, and the absence of a state income tax is so dear to Texans that politicians haven’t had a serious conversation about it for more than a quarter century.
Perhaps there’s another place to look: Texas Comptroller Glenn Hegar issued his annual estimate of the value of taxes that Texans do not pay because of various tax breaks.
His office has a lot of different descriptions of tax breaks; the report “estimates the value of each exemption, exclusion, discount, deduction, special accounting method, credit, refund and special appraisal available to payers of Texas’ sales, motor vehicle sales, franchise, oil production and gasoline taxes, as well as property taxes levied by Texas school districts.”
If that spiel didn’t take your breath away, perhaps the estimated total value of those breaks in fiscal year 2019 will do the trick: $59.8 billion.
About three-quarters of those exemptions apply to state taxes; the remainder — $14.2 billion — is exempted from school property taxes.
Don’t get too worked up about the recipients of those tax breaks: If you’re a Texan, you’re getting at least some of the benefit. You don’t pay sales taxes on most groceries, or on a lot of medicine, whether it’s the prescription or the over-the-counter variety. If you’re a homeowner, you have a homestead exemption applied to property taxes.
Some transactions — most transactions, in fact — aren’t subject to sales taxes. According to the comptroller’s “Tax Exemptions and Tax Incidence” report, Texas businesses had gross sales of $2.15 trillion in 2017, but only 23 percent of that — $483 billion — was subject to sales taxes. Texans don’t pay a sales tax on real estate transactions or on most services.
It’s a lot of money. But it would take a lot of money to make big changes in how Texans pay for public education. According to the Legislative Budget Board, we’re on track to spend $55.4 billion on public education in the 2019 fiscal year, including $5.3 billion from the federal government, $19.4 billion from the state and $30.7 billion from local school property taxes.
Anyone setting out to balance the local and state shares would have to put up half the difference, increasing state spending by $5.7 billion and cutting local property taxes by the same amount.
That’s just for one year. Texas lawmakers write two-year budgets, which means you’d have to come up with almost $12 billion to make it work.
School finance is one of the most persistent problems in state government and in Texas politics. Voters don’t like high property taxes — it comes up all the time in town hall meetings at just about every level of government.
They don’t want an income tax — you can tell by the number of politicians who run on the idea every year.
Every so often, state lawmakers will talk about replacing property taxes with consumption — sales — taxes. Those proposals generally die when the numbers are crunched: Roughly speaking, you’d need to double the state’s current 6.25 percent sales tax rate to raise enough money to get rid of property taxes.
It makes a scrub of the state’s tax exemptions more attractive, even if each of those breaks has a constituency that benefits. Every one of those groups — yours, even — would put up a fight, but it might be the least painful way for lawmakers to find a large amount of money to fix the school finance system without a voter revolt.
If roughly $60 billion in various kinds of breaks are marbled into the state’s annual revenues, and you need just under $6 billion of that each year to level out the school finance system, it’s worth a look.
It’ll get one, thanks to Hegar. The comptroller just published a shopping list.
