It is a well known fact that nimrod liberals fail to understand the inverse relationship that exists between taxation and both federal revenues and economic growth. However, it seems even conservatives are getting a bit confused of late when it comes to the tax implications inherent in voting for either Medina or Perry. KBH is not even remotely a conservative and so will not be addressed in this post.
If you have been following the governor’s race at all, you know that one of Medina’s keystone issues is the abolishment of property taxes and a movement over to a pure consumption tax. I have been listening to misinformed critics of this idea for too long now and it was either reply here or have my head explode…
Misinformed argument #1: Do away with property taxes in Texas? That is just some crazy idea cooked up by a bunch of libertarians.
Not really, no. In 2009, the Texas Public Policy Foundation commissioned a report from Dr. Arthur Laffer, best known for the “Laffer Curve” and his roll as Reagan’s chief economist and architect of the wildly successful Reagan tax cuts. Laffer’s group produced a study entitled “Enhancing Texas’ Economic Growth Through Tax Reform”, in which they recommend repealing Texas property taxes and replacing the revenues with a revised sales tax. A link to the report is HERE. Despite the fact that Perry supporters will sometimes argue with you on this issue, you will never hear Perry criticize this report because he cherry-picks from it all the time.
Misinformed argument #2: The Laffer report states that if we repealed property taxes and moved over to consumption taxes only, the sales tax would necessarily rise to a whopping 14% just to stay revenue neutral.
Yes, if all we did was abolish property taxes and keep the sales tax base the same. However, if we broaden the sales tax base to include the sale of property — in other words all property is taxed only once at the time of sale, then that immediately knocks the sales tax to around 9%. You can play with the sales tax base in various ways to get that number down as low as 6%. But at the end of the day, that would be an issue to be fleshed out by the people and their lawmakers in the implementation phase.
Misinformed argument #3: Sales taxes are not progressive and hurt the poor the most.
Medina recommends that food and medical care be exempt from the sales tax base. Not only would a consumption tax not adversely affect the poor, a strong argument can be made that rental rates would drop as property owners see their overhead drop. In addition, Laffer and most conservatives are supply-siders…a rising tide lifts all boats.
Misinformed argument #4: If we abolished property taxes, the resulting drop in revenues might very well bankrupt the state.
This argument is just plain annoying because we are dealing with a lack of understanding regarding the relationship between taxes and revenues. In addition, this fails to recognize that not all taxation is created equal.
The property tax is one of the least efficient forms of taxation. It is assessed each year based on a purely subjective perceived value, which often forces homeowners to pay taxes on capital gains that may or may not ever be realized. Laffer’s report stresses the importance of an efficient and fair tax system to a state’s economic growth, and outlines how moving to a broad-based sales tax would drastically increase personal income and create over a quarter of a million news jobs for the Texas economy.
Misinformed argument #5: Our property taxes are high because we have no state income tax and while Perry is not all that and a bag of chips, he has done an okay job. Better the devil you know…
This one is common from good-natured folks that are really just not paying attention. Texans pay one of the highest property taxes in the nation and many Texans believe this must be necessary and fair as we have no state income tax. Wrong. While our state’s constitution restricts the passage of a personal income tax, we have not only seen our property taxes continue to rise under Perry, in 2006 he expanded the franchise tax by signing into law the new margin’s tax on businesses. In addition, state fees have increased across the board making it that much more pleasant when we are forced to deal with the state bureaucracy.
But let’s step away from the money talk for a moment, because for many civil libertarians like me, this is an issue of liberty and private property. Currently, there is not one single Texan that owns their property outright. However, if we move to a consumption tax, homebuyers will pay the tax one time at the point of purchase, and the prospect of being taxed out of one’s home is removed. The ownership of private property is one of the most important rights guaranteed to the American people by our Constitution and we must fight to protect it.