Is Getting Rid of Property Taxes A Good Idea?

"A plan to abolish Texas’ property tax system – the longest of political long shots – is getting slightly better odds with a push from the top Democrat in San Antonio.

Bexar County Judge Nelson Wolff says he could support replacing property taxes with a consumption-based sales tax.

Calling a tax swap the “end game” in the simmering revolt over steadily rising property tax bills, Wolff agreed with the conservative Texas Public Policy Foundation on the need for fundamental structural change.

TPPF policy expert James Quintero estimates that a 10.98 percent universal tax on sales and services would generate enough revenue to scrap Texas’ property tax system altogether. The sales tax in most jurisdictions is currently 8.5 percent."

That would be hugely regressive. Imagine a millionaire who spends 500K a year, and invests the rest - 10.98% on 500K equates to a 5.49% rate. OTOH, someone who makes 50K a year probably spends 45K, thus an effective rate of 9.882%. The other big factor is the great amount of wealth inequality that’s currently in real estate.

But the millionaire may spend $0/year on housing. If the person making 50K per year spends 30% of their income on housing and the millionaire spends 0% that’s even more regressive. I’ve read up on the sales tax proposal when Medina proposed it and it’s a pretty decent replacement for property taxes. Sales tax can be focused to avoid being excessively regressive. Whereas property taxes do a very poor job in figuring out if a person whose home is work 250k is a millionaire or living right at the poverty line.

I should add I’m one of those people whose income is not being “properly” capture in housing costs.

Also I should add, I’m mostly in favor of this as it’s “systems that are better than what exists and could potentially pass”, not “systems I’d prefer”.

maybe if we had tax free housing (rent/mortgage), as well as tax free food and medicine type stuff… I’m still thinking that the combination of tax sheltering with real estate leveraging would yield greater inequality. Will think on this. Also, it sounds like an ALEC type proposal (isn’t no state income tax in TX Constitution?)

I don’t think a sales tax is better than property taxes. I suspect the correlation of “rich people” to “own the most expensive properties” is very very high, with a few outliers like a couple of Austin’s neighborhoods.

And the “what if the rich person doesn’t own any real estate” question is tricky because of the large contingent of people who insist that renters ‘pay property taxes through their rent’, is it not? (I find that answer facile and misleading, but it’s one commonly given).

Sales tax with some kind of low-income exemption may even require more paperwork / friction than the highly imperfect property tax system + exemptions we have today. I think there are some beneficial effects to property taxes which would be lost under the swap too (it provides a modest disincentive for people to sit on a valuable property and do nothing with it). Sales taxes seem to me to only have disincentives (penalize consumption, reward parking money in the bank, which is bad for the modern economy).

I’d hold off and go for income tax (which would hurt me a lot more than either sales tax or property tax).

It’s a terrible, not to mention entirely unworkable, idea. Even aside from the fact that any sales tax increases disproportionately hurt lower-income folks by a huge degree, I fail to see any fathomable way a “consumption-based” tax could somehow compensate for the literal billions of dollars that would be lost. (Also, despite their continuing appeal among conservatives, the viability of flat taxes was thoroughly disproven decades ago.)

Unless you live in Nevada – which has low taxes all around because the casino industry essentially funds the entire state’s governmental infrastructure – you can either have low property taxes or low/zero income taxes, not both.