Lower sales tax helps more Texans
If you’ve lived in Texas for a considerable amount of time, you’re likely familiar with the state’s elevator pitch: affordable real estate, business-friendly regulations, mild winters, and, of course, “low taxes.”
The absence of a state income tax is, indeed, a nice perk. It’s why Texas’ overall tax burden ranks 32nd in the nation. Yet, citing that statistic alone is misleading because it doesn’t indicate the regressiveness of Texas’ tax system, which imposes a heavy burden on those who can least afford it.
Texas makes up for a lack of income tax in part by sticking it to property tax payers, whose burden ranks as high as seventh nationally, depending on how you measure it, and in part by levying the 13th-highest sales tax rate in the nation, at 6.52 percent — even higher at 8.25 percent if you live in Harris or Bexar counties. The sales tax takes a bite of our income every time we buy clothing, diapers, toilet paper, laundry detergent, coffee, or make a purchase on Amazon.
Households in Texas making less than $35,940 pay more than 2 percent of their income toward sales taxes, adding up to more than $700 per year, according to Every Texan, a progressive nonprofit think tank. Those same households pay 3.5 times more in all state and local taxes as a percentage of their income than households making more than $166,508.
These disparities are one of the main reasons this board has called for state lawmakers not to myopically focus on property tax relief in order to return the $33 billion surplus “back to the taxpayers.” After all, property and business owners alone didn’t create this windfall. Renters did too every time they paid sales tax for goods at an inflated price, and there’s hardly any guarantee that tenants will see a benefit from the various property tax cut proposals floated by Gov. Greg Abbott and Lt. Gov. Dan Patrick.
We’re encouraged that state lawmakers on both sides of the aisle are looking to spread the surplus benefit to as many Texans as possible.
A recent bill filed by state Sens. Royce West, D-Dallas, and Bob Hall, R-Edgewood, would cut the sales tax rate from 6.25 percent to 5.75 percent. The reduction would cost the state treasury $7 billion, or roughly 8 percent of the $87.9 billion in discretionary revenue that the state comptroller estimates would come from sales tax receipts in the next twoyear budget cycle. West told Hearst Newspapers’ Jeremy Wallace that the intention is to pair the sales tax cut with the $15 billion the state has earmarked for a property tax relief package.
“We’re flush with cash,” West said.
It’s true, and that’s why now is as good a time as any to reward Texans whose dollar isn’t stretching as far as it used to. Cutting the sales tax rate to 5.75 percent would bring Texas closer to the middle of the pack nationwide compared with other states. It could make Texas, which has already added nearly a half-million more residents in the past year, even more attractive to people and businesses eager to relocate. The fact that the sales tax cut has bipartisan support, including from Abbott, and would not apply toward the state’s constitutional spending cap is also critical.
Yet in the frenzy to spend down the surplus, we can’t kid ourselves that Texas will always have extra cash on hand. Many economists are predicting an economic recession, particularly as the Federal Reserve focuses on raising interest rates to cool down inflation. That could mean that sales tax receipts under a reduced rate might not be as robust as they have been in this most recent cycle. That could lead to painful budget cuts in the future, or worse, a sales tax hike to make up for the lost revenue.
Tax cuts alone are not a panacea for the vast number of problems in our state that need fixing, from underpaid teachers to a broken foster care system to unfunded pension liabilities. The guiding principles for spreading the wealth of a $33 billion surplus should be to impact as many people as possible and bridge the yawning wealth gap between the poorest and richest Texans at a time of economic unrest. Lowering the sales tax is a perfect place to start.