Eliminate Property Taxes?

So in case you haven’t been following the Republican gubernatorial primary (and you should be, best reality show on TV), things are getting upended in the Republican world. An upstart tea-party candidate – Medina – has been making massive inroads. In the latest polls it looks like she’s trending to upset Hutchinson and the possibility of her being in a runoff with Perry is not out of the question. She has some interesting ideas and is smart and prepared. All things that are completely unexpected in a Republican candidate.

One of her radical platform ideas is to change our state to being completely dependent on the sales tax. Which I thought was crazy, but then I realized that Hutchinson and Perry were talking about building new infrastructure and creating new jobs without any additional revenue. I think that might be more crazy.

She’s getting this idea from this position paper. It requires that we raise sales taxes to some level that they are on parity with what’s raised via property taxes. I can accept the fact that there’s some level at which that can be done, and that they’ve basically done their math right. I think they have the base rate at somewhere around 12%. My guess is that would mean we’d see about 15% in Austin.

My gut reaction to this is the “sales tax is regressive” and it is. But in Texas I don’t see any chance of an income tax anytime soon, so perhaps regressive isn’t so bad. And the problem that I can’t figure out how to solve is rising property value. The most controversial part of Medina’s plan is that real estate will be taxed at time of sale (she’s actually backed away a little bit from this which I think is stupid, this is what the plan hinges on). So essentially the state still gets a decent income off of real estate. In addition homeowners on fixed incomes won’t be forced out of their homes. If they chose to sell they can. If not, they stay in their home. It’s a much better system than the community trusts that Austin has been playing with (although those are better than nothing).

While there’s an inherent boom and bust cycle to the sales tax, there’s also one for property taxes, as we’ve seen recently. So perhaps a lot of the traditional thinking on this one could be wrong. Neither property taxes nor sales taxes are good at extracting money from the rich, so I can’t really use that as a reason to recommend one over the other. You really have to have an income tax for that purpose. And I see zero change for that in Texas, so moving on…

That said, I’d really be interested in seeing what this does to our cities. Currently our suburbs are heavily subsidized by our cities tax dollars. They get to put in massive housing developments that have long roads stretching to other city’s massive retail centers. There’s the potential for this to change the way cities plan. Since they’ll be trying to get more of those tax dollars as their sole source of revenue they’ll have to add commercial into the mix for any new development. Since each house would no longer be a revenue source, a mix of x commercial would become required to sustain y amount of new development. Don’t know what the value of x and y are, but this could potentially do for mixed-use what good intentions alone could not.