The Republican leadership in the Texas Legislature announced an agreement Wednesday to swap a sales tax increase with property tax cuts.
Gov. Greg Abbott, Lt. Gov. Dan Patrick and House Speaker Dennis Bonnen said in a press release that in an effort to lower “skyrocketing property taxes,” they had agreed on a plan to increase sales taxes by 1 cent to buy down property tax rates for homeowners and businesses. That would bring the sales tax to 7.25 percent.
There was one caveat to the plan: It will go through only if lawmakers pass a bill to reduce how much municipalities can increase property tax revenues year over year. If that legislation – House Bill 2 and Senate Bill 2 – passes, then lawmakers can tackle the sales tax increase.
“If the one-cent increase in the sales tax passes, it will result in billions of dollars in revenue to help drive down property taxes in the short and long term,” the statement said.
Cutting property taxes has been a top priority for the state’s Republican leadership in the 2019 legislative session. But without large state budget cuts, there’s only so much the Legislature can do. There are only two major revenue generators in the state: property taxes and sales taxes. Lowering one of those, without cutting spending, would mean raising revenue from another.
The idea has the support of the Texas Public Policy Foundation, a conservative think tank influential among state lawmakers.
“With a sales tax, you have a discretion of whether or not you want to save or consume, and then if you decide to consume, you pay the sales tax," the group's senior economist, Vance Ginn, said. "And so this allows for not only more freedom overall, but also allows for you to have more prosperity because you’re not forced to pay an overall tax.”
But Texas Democrats called raising the sales tax "dead wrong" and said they'd fight "tooth and nail" against it.
“Let’s get this straight, Republicans want to raise taxes on families who are struggling to afford their groceries and clothes for their growing children. All in the name of tax cuts for the rich," they said in a statement. “Once again, Republicans are lining the pockets of the wealthy few at the expense of hardworking Texans."
The Center for Public Policy Priorities, a progressive state policy think tank, also called the plan the "wrong approach."
"First, the sales tax takes the most from Texans who have the least," it said in a statement. "Second, sales taxes are volatile, so further linking critical public services to an erratic tax is misguided."
CPPP said the current state sales tax in Texas is the 13th highest in the country: "Adding another one percent would push Texas to the highest state sales tax rate in the U.S. — tied with California."
Efforts to increase the state sales tax rate have been unpopular in the past. The sales tax is considered a regressive tax, because everyone – no matter their income – must pay it, and lower-income families pay a higher percentage of their income on a regressive tax.
If the plan passes the Legislature, it would go to voters for approval as a constitutional amendment in November.
This post has been updated.