First-term state Sen. Van Taylor recently credited the Texas Senate with advancing a record tax cut.
The Plano Republican’s March 25, 2015, press release, said he’d "helped pass what, if enacted, would be the largest tax cut in Texas history through the State Senate," providing $4.6 billion in property and business tax relief.
Taylor was among more than 20 Senate primary authors of Senate Bill 1, which with voter approval would amend the state’s mandatory homestead property tax exemption, which has been $15,000 since 1997. If adopted, the new variable exemption, equal to 25 percent of the statewide median home value, was predicted to save homeowners $206 on average in 2016 and $233 on average in 2017.
Two other measures, each authored by more than 20 senators (including Taylor), reduced the state’s business franchise tax rate by 15 percent and exempted an additional 61,000 small businesses from it.
Tax-cut history has been ballyhooed in Texas before.
State leaders in the 1990s and again in 2006 declared history in the works when they drove down school property taxes — even though the homeowners who were supposed to benefit didn’t always notice reductions because school districts and other local governing bodies still raised tax rates and reaped more due to escalating property values.
Stumping for president in fall 1999, then-Gov. George W. Bush ran TV ads in Iowa saying he’d "signed the two biggest tax cuts in Texas history."
In 1997, lawmakers had proposed and voters approved the new $15,000 homestead exemption, up from $5,000 before. The two-year cost to the state of that move was pegged at $1.04 billion, according to a January 2015 report by the state comptroller’s office covering tax changes since 1972. In 1999, lawmakers funded local school property tax relief at a state cost of $1.4 billion in 2000-01, the report said.
A billion here, a billion there, those reductions had far short of the projected two-year effect of the plans saluted by Taylor.
2006: $14 billion in relief
Then again, in May 2006, the Republican-led Legislature and Gov. Rick Perry agreed to what was then touted as more than $6 billion a year in school property tax relief to be partly offset by revisions in the state’s business franchise tax, a $1-per-pack hike in cigarette taxes and tighter tax-reporting requirements for buyers of used cars.
According to a May 2006 Austin American-Statesman news story, homeowners would benefit from the legislated one-third cut in maximum property tax rates for school operations. The owner of a $100,000 home was in for annual savings of about $145 starting in fall 2006 with the savings rising to $425 in fall 2007, the story said, though savings would be lessened if school boards inched up tax rates.
On full implementation, the relief was projected to cost the state $14 billion every two years, according to a Legislative Budget Board chart published in 2012. So, the 2006 tax changes whomped the 1997 and 1999 cuts by the yardstick of projected state costs biennium by biennium. And, it appears, that $14 billion in intended relief also exceeded the $4.6 billion in relief predicted due to the Senate-passed proposals that Taylor described as record-setting.
We asked Taylor how he reached his conclusion. To our inquiry, Lonnie Dietz, Taylor’s chief of staff, said by email that Taylor relied on the comptroller’s 2015 report on tax changes since 1972 to gauge the legislated actions of 1997, 1999 and 2006.
According to the report, Dietz noted, the school tax-rate cuts ordered in 2006 were projected to cost the state $3.9 billion through August 2007 and another $18.8 billion the next 24 months, money that would make up for lost local revenues due to the mandated rate cuts. Then again, the report said, the tax hikes approved to help fund those costs were predicted to generate more than $8 billion in the same period--making the 2006 actions a tax swap, not a pure cut, Dietz told us.
Another thing: Dietz pointed out the lasting effect of the 2006 tax-rate action was to slow rather than reverse property tax increases. In 2008, a business group, the Texas Taxpayers and Research Association, compared 2007 school property taxes with what it calculated Texans would have paid without the legislated rate cut. The difference amounted to about $7 billion, it said. "The average Texan's total property tax bill in 2007 was 20 percent lower than what it likely would have been had there been no tax relief initiative," the group said.
Separately, the Texas Education Agency offered data to us in 2010 showing that collections for school maintenance and operations taxes were down 30.2 percent in 2007 compared with what the state projected they would have been without the rate cuts.
Then again, taxpayers don't typically compare their tax bills to what they might have paid but to what they actually paid last time.
And why didn't school taxes fall more between 2005 and 2007? At the time, Dale Craymer, TTARA’s president, gave two major reasons. The first was a provision in the 2006 tax overhaul giving school boards the option of raising the maintenance and operations rate by a few cents for enrichment purposes. By 2007, more than 1,000 Texas school districts had done so. That lessened the impact of the mandatory 33 percent rate reduction in those districts.
The second, most powerful factor, Craymer said, was rising property values. If values rise proportionately more than tax rates are cut, savings are negated and tax bills go up. In both 2006 and 2007, the total taxable value of property in Texas rose more than 10 percent each year.
Dietz also suggested we set aside property tax relief for comparative purposes because such taxes are locally set. If you do set aside property tax actions, he said, it’s clear the Senate’s 2015 measures shrinking the business franchise tax alone--SB 7 and SB 8--have a two-year savings to businesses of nearly $2.48 billion, according to legislative fiscal notes. "So on its surface right there no other state tax cut in the history of Texas even approaches what the Senate passed with SB 7 and SB 8," Dietz wrote.
The comptroller’s report lists about 10 instances of lawmakers revising the franchise tax from 1975 through 2013 including some expansions and hikes. There also were attempts to cut the tax or reduce who pays; none of those actions were projected to cut more state revenue from the franchise tax than the proposals celebrated by Taylor.
As we analyzed the senator’s statement, other questions arose.
For instance: Biggest tax cut in history for whom? And: Biggest tax cut based on the impact over two years--or longer? The school property-tax reduction adopted in 1997, for instance, surely has cost the state much more than its initial two-year price tag. On the other hand, it doesn’t seem fair to compare many years of accumulated costs (and savings to homeowners) to the two-year expected impact of the latest Senate moves.
We gathered other views.
By email and telephone, Vance Ginn, an economist for the conservative Texas Public Policy Foundation, and Chris Bryan, spokesman for State Comptroller Glenn Hegar, each said the Senate-supported measures amount to the largest potential tax cuts in Texas history.
Ginn stressed the 2006 school tax actions provided tax relief--stopping short of keeping taxes down. Like Dietz, he pointed out a chart in a December 2014 report by the state comptroller’s office indicating total school property tax collections decreased $2 billion in 2007 compared to the year before, but such taxes went up in 2008 and also increased all but one subsequent year through 2013.
A school finance expert
We shared Ginn’s message about total school property tax collections bouncing up after going down for just one year after the 2006 changes with school lobbyist Joe Wisnoski, a former Texas Education Agency finance official. Wisnoski commented by email: "Come back in a year, and I would imagine the same could be said about the Senate’s property tax cut of 2015." He further speculated that likely increases in property values will outpace projected savings from the Senate plan (see his calculations here) leading him to predict no reduction in overall school property taxes levied for tax year 2015.
"That is not to say that the additional exemption" for homesteads in the Senate plan "is trivial," Wisnoski wrote, "and I would never characterize it as anything other than a tax cut. But I don’t believe it to" be "larger than the 2006 rate reduction."
The 2006 law, he wrote, ultimately reduced school maintenance and operation rates by at least 22 percent; the maximum allowed M&O rate is lately $1.17 per $100 valuation, he said, compared to the $1.50 per $100 valuation in 2006. And district rates are even lower in some districts, Wisnoski indicated. Even factoring in districts that impose the state’s maximum debt-related tax rate of another $0.50 per $100 valuation, he wrote, the lingering percentage rate reduction would remain around 16.5 percent.
Footnote: Weeks after Taylor made his claim, Texas House members approved proposed cuts in sales and business franchise taxes projected to cost the state $4.9 billion ($300 million more than the Senate’s plans) over two years--about $2.3 billion from shaving the state sales tax rate and nearly $2.6 billion from shrinking the franchise tax. The legislative session ends June 1, 2015.
Taylor said he "helped pass what, if enacted, would be the largest tax cut in Texas history through the state Senate."
Senate-approved proposals reducing the business franchise tax promise a record slash in that tax.
But together, the Senate measures reducing franchise and property taxes by about $4.6 billion over two years, what Taylor highlighted, add up to less tax relief than the school property tax-rate reductions legislated in 2006, which cost the state $14 billion every two years. Homeowners might not notice those changes partly due to escalating values. Still, the state-imposed ceiling on school operations tax rates remains 22 percent lower than what was in place before.
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