Protecting Texas Property

In a world moving more and more rapidly towards globalization, perhaps we’d do well to review exactly what insures freedom.  What is it that makes one free?  What sets a free man apart from one enslaved? 

24 SEP 2009 – Do we still hold these truths to be self evident, “that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty, and the pursuit of happiness. That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed?”  

Surely, if it is government’s job to secure life, liberty and happiness, it should not be in the business of depriving citizens of those very things.  Man works and economies flourish only to the degree that one is able to enjoy the fruit of their labor.  Even before our Declaration of Independence, Thomas Jefferson wrote, “the enterprising of every country knew that coming to America insured them the acquisition and free possession of property.” It is ownership that fuels enterprise. We’ll work hard if we get to enjoy what we work for.

We’ve lost sight of that here in Texas. We’ve surrendered private property ownership to the ever-growing state – we lease our property in the form of ever increasing rents known as property taxes.  We’ve forgotten that ownership is an essential element of freedom; that property taxed is not owned at all. We must cherish and protect all property ownership.  Jefferson was correct in his writing to James Madison “small landholders are the most precious part of a state.” 

If Texans are to remain free from the ever-encroaching state, Big Brother, we must own our property, on that we must not compromise and we must not surrender. In order to protect against subservience to that growing state, we must eliminate property tax in Texas and we must protect against abusive eminent domain seizures. We must be free to own that for which we labor. Texas can lead and Texas will lead…when we protect that which keeps men free.

Frequently asked questions on Debra Medina’s proposed Texas Tax Policy Reforms

Unlike other candidates who want to “tinker” with the current system, or who have no real vision for tax policy reform at all, Debra Medina favors eliminating Texas property taxes altogether and replacing them with a more broadly-based sales tax. It is estimated that the pro-growth, pro-families effects of this single reform will create anywhere from 127,700 to 312,700 new jobs in Texas, and increase Texans’ personal incomes by an aggregate of between $21.3 billion to $52.1 billion, or between 2 and 4.3%, over the first five years. Needless to say, this proposal has attracted a lot of attention.

Why would you want to abolish the property tax in Texas in the first place?

Private property ownership is central to a free society. Without freedom to own and defend the fruits of your labor, most other rights mean very little. The freedom to own and be secure in your home is central to many of the issues Texans have faced over the last several years as special interests and establishment politicians have continued to seek to increase their wealth and power at our expense. The property tax, by requiring that we either pay perpetual fees on the land we claim to own or face prosecution, ensures that we never really own it at all. The message is clear: we live on our land at the government’s mercy.

The tax on real and tangible property represents one of the most inefficient, anti-family, anti-job forms of taxation available to government. It punishes businesses and industry with taxes that stay more or less the same regardless of whether they’re making money. It gets applied unevenly from taxpayer to taxpayer, and requires the creation, staffing and funding of bureaucratic fiefdoms throughout the state in which tax assessors exercise near-absolute control over who does and does not receive favorable treatment. It in effect turns property owners into squatters in their own homes, requiring over the course of their lifetimes that they pay the entire value of their property to the government for the privilege of living there. It drives the elderly out of homes for which they have cared and saved their entire lives. It depresses the value of real property and imposes a disproportionate burden on capital-intensive industries, thereby retarding growth in the very industries that are best able to generate Texas jobs. It hurts our economy, it hurts families, it breeds disrespect for State government, and it disenfranchises Texas citizens who lack the connections or the resources to fight the appraisers’ relentless grab for more revenues.

But is it really possible to completely replace property taxes in Texas by expanding the sales tax base?

Yes. The Texas Public Policy Foundation (TPPF) released a study in April, 2009 showing that simply expanding the sales tax base to include categories of goods and services that are not currently taxed in Texas, but that are taxed in other states, would replace almost all the revenues currently collected by the property tax. Examples of some services that we currently do not tax include mining services, drilling services, legal services, limousine services and others. By also adding in a one-time sales tax on the saleof property (as opposed to an annual tax on property ownership), the TPPF study showed that we could replace the entire property tax revenues with a modest increase in the sales tax rate to 8.8 percent.

That’s an increase in the sales tax from the current top rate of 8.25%. I thought you were opposed to tax increases?

We are. If we can’t finance our current level of government spending by collecting 8.25% tax from all taxable sales in Texas, then our State government is simply spending too much. Like every other Texan these days, the government will have to take a hard look at how it spends its revenues and find ways to live within its means. In the worst case scenario, we could phase reform in over time while restraining the growth of government; this would give us an opportunity to grow into a revenue neutral position. But one way or another the property tax has got to go.

Why tax property sales – aren’t you trying to abolish property taxes?

This would be a one-time sales tax imposed on the value of the property at the time it is purchased, done as part of the effort to make the sales tax as broad and fair as possible. In some jurisdictions, for example, property owners currently have to pay a tax of 2.65% on its value every single year that they own their property. After ten years the owner will have paid to the government more than 25% of the property’s starting value, and even more if that value goes up. Compare that to a one-time up-front tax of 8.25%; the new owner will break even at 3 years, and will never have to pay taxes on the property again (at least until it collects and remits sales tax on its own subsequent sale). This would represent dramatic relief for property owners, in effect guaranteeing that they could never be taxed out of their homes or business properties by a State tax, at least, and it would carry the potential for an equally dramatic rise in the value of Texans’ properties promptly upon passage of the reform. In the above example, our rough estimates show that the rise in property’s value elimination of the annual property tax burden could be as much as 13.2%, assuming an anticipated 10-year holding period and a discount factor equivalent to 10-year U.S. Treasury Note yields.

How are middle and low-income families helped by expanding the sales tax – isn’t that a much more regressive tax than the property tax?

First, we would ensure that items such groceries, medicines, basic health care and other basic needs continue to be exempt from the sales tax. It’s the disproportionate percentage of such families’ incomes spent on such items that makes the sales tax regressive, and we would actually work to expand this exemption to make sure that those individuals and families are not disproportionately impacted by reform. Second, it’s not at all clear that the property tax is in fact less regressive. Although the recent Institute on Taxation and Economic Policy study showed the distribution of the Texas property tax burden to be fairly neutral across income groups, this study ignores the “invisible” burden borne by renters for their landlords’ property taxes, and the “stealth” property tax passed by Texas businesses to their customers in the form of higher prices. Once those factors are taken into account, and once we realize the dramatic expansion of opportunities for Texas workers to earn a decent living and to feed, clothe and shelter their families, we believe that middle and low income earners will be foremost among this reform’s beneficiaries.

Doesn’t your proposal take away local control over schools, hospitals and local infrastructure?

Local taxing jurisdictions already can and do set local sales taxes in many cases, the revenues from which are simply returned to the local jurisdiction within a few weeks after collection by the State Comptroller. And Texas already has several revenue sharing plans in place to support local school districts, the newest of which was implemented as part of our 2006 state-wide school finance reform. That particular reform allocated State sales tax and other revenues to enable local school districts to reduce their maintenance and operations property tax rates by 11% in 2007 and 33% in 2008. We also have two so-called “tax rate equalization programs” — the Instructional Facilities Allotment program and the Existing Debt Allotment program — both of which assist less wealthy districts by providing revenues to enable them to issue new bond debt or service existing bond debt. And under the Foundation School Program, which has been in place since 1949, the bulk of funding for all of Texas’ public schools comes from a mix of state revenues and local property tax receipts, which are allocated in accordance with specified formulas to help meet the needs of Texas schoolchildren wherever they happen to live. All of these programs allocate State revenues to local districts to make up for differences in their property tax bases, or to enable them to grant limited property tax relief to their residents and local businesses, without compromising local control over local education. Our proposal would simply build on these programs so as to eliminate local property taxes altogether. Sharing formulas would take account of local economic growth, population demographics, historical tax receipts, and current and projected debt service requirements, but the key is that we already have such programs in place right now. We strongly believe as a matter of principle in keeping as much control over local affairs at the most local level of government possible, and this reform would be implemented with that principle as our guide.

Why should Texans who rent their homes care about the property tax?

Residential property taxes are fully passed to tenants by their landlords as part of the rent. No landlord operating at a profit or break-even actually absorbs the property tax imposed on the apartments, townhouses, single family homes or other dwellings rented to others. This “invisible” tax burden falls completely on Texas families who rent their homes, and since renters tend to belong to lower income groups than do homeowners, the tax on rented property falls disproportionately on Texans in lower income groups. Elimination of this burden would represent much-needed relief to those Texans who are hurting the most.

Then why not grant relief to home owners and renters, but keep the tax on commercial and industrial properties?

Like residential property taxes on rented property, taxes imposed on commercial and industrial properties are also passed on to end users, at least in those businesses not operating at a loss, and they are just as “invisible”. Texas families must pay these taxes indirectly whenever they purchase goods and services from Texas companies. Even businesses that sell only to other businesses in effect pass every penny of their property taxes to their purchasers as part of the price of their products. Eventually those taxes get passed to consumers once they reach a business that in fact sells to the public, after accumulating all the intervening middlemen’s property tax burdens along the way. Besides distorting market incentives and depressing property values, this “stealth” tax leaves Texans completely unaware of the true burden they bear for the cost of their government. Some of our politicians, it seems, would just like to keep them in the dark.

But doesn’t the Texas Association of Realtors oppose your proposal, saying it will hurt first-time buyers and eliminate a valuable federal income tax deduction?

The Texas Association of Realtors represents realtors, not taxpayers. If having a property tax to deduct is so great for taxpayers, then why not double it so they can double their deduction? It’s nonsense. The taxpayer is better off not having to pay the tax at all, instead of being able to recoup some small percentage of it as a federal deduction. And local property tax assessors don’t care whether this is your first house or your fifth; you still have to pay the annual property tax on it. Other special interest groups are likely to object also, such as the firms who will go in to the tax assessor and negotiate your appraised value down for you. But it seems sometimes that the tax assessors and the tax negotiators are both in cahoots. The tax assessor assesses too high a value, the negotiator knocks him down a little for a share of your tax savings, and everyone goes away happy; everyone, that is, except for the property owner who just got fleeced again. Texas taxpayers are the biggest special interest group, and they’re fed up with these kinds of games.