Replacing Property Taxes with Sales Taxes Would Be Bad for Texas Businesses, Families, and Public Education. Policy Page. No. 07-307

Public education is the foundation of our democracy and the engine of our economy. Texans have a collective responsibility to ensure that public education is adequately supported. This responsibility needs to be fairly distributed among Texas families in a way that supports economic growth. Recently, some have proposed that Texas replace local school property taxes by increasing the rate of the state sales tax or expanding the sales tax to more goods and services. Such a tax swap would be a bad deal for businesses, families, and public education. Reasons include: 1) The swap would make Texas businesses less competitive because the higher sales tax would raise the cost of Texas goods and services; 2) Taxes on most Texas families--including middle-class families--would actually go up. Only the wealthiest families would see a tax reduction; and 3) At the same time, public education would be hurt. Schools would have one source of revenue, sales, which is less stable than property. With the state paying all the bills, more decisions would be made in Austin, and the link between local taxpayers and public schools would be broken. In addition, local communities could no longer supplement the basic education provided by the state. Texans need to ask what problem we are trying to fix? Are property taxes too high? Even if Texas eliminated school property taxes, Texas would still have to raise the same amount of tax dollars. Are we worried that some residents aren't paying their fair share? In fact, everybody pays the property tax either as owners or as renters (with the tax reflected in the rent). Are we worried that property taxes discourage homeownership? Texas already has laws on the books to ensure that property taxes do not undermine homeownership. Are we worried that property taxes don't correspond to our ability to pay? Generally this is not true, but for those families for which it is true, most states address the problem through a tailored tax break called a circuitbreaker. Texas could provide a circuitbreaker too. As discussed in this paper, trading property taxes for sales taxes does not solve any real problems, but it does create some. (Contains 8 endnotes.)