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Tomlinson: Texas property tax breaks for businesses are only the tip of a troubling iceberg

May 14, 2021
Click here to view original web page at www.houstonchronicle.com

You grab the pitchfork; I’ll get a torch. We’re gonna march down to the Capitol steps and burn Big Bidness in effigy. Texans should not be shocked to learn that politicians have a system to give companies a discount on one of the most burdensome, poorly considered and exploitative […]

Click here to view original web page at www.houstonchronicle.com


You grab the pitchfork; I’ll get a torch. We’re gonna march down to the Capitol steps and burn Big Bidness in effigy.

Texans should not be shocked to learn that politicians have a system to give companies a discount on one of the most burdensome, poorly considered and exploitative property tax systems devised by man. How did you think lobbyists pay for those bespoke suits?

We can get angry that corporations will get $10 billion in tax breaks under Chapter 313 of the Texas Tax Code. We can feel outraged that the Texas Legislature installed so many loopholes that some companies abuse the program, and elected officials have made a hash of it.

But remember, Chapter 313 is a single law in a massive system of taxes, subsidies and incentives. Legislators can throw 313 out, but that won’t solve the fundamental injustice: Our entire government revenue system is geared to protect the wealthy from income taxes.

For years I have highlighted Texans’ misplaced pride in the constitutional prohibition on income taxes. Every time some politician says Texas is great because it does not tax income, he or she is engaging in one of the greatest of all-time bait-and-switch cons.

Texas is not a low-tax state, not even close. Texans’ tax burden is middle-of-the-road when compared to other states. What sets up apart is who pays the taxes and how they are collected.

Most state and local government revenues in Texas come from sales and property taxes. Here’s the dirty little secret: High-earners spend a smaller proportion of their income on taxable items and housing than middle-class and low-wage workers.

Texas does not tax people based on how much money they make; we tax people on what they own and how much they spend. This is how property taxes become so unjust.

Consider a surgeon who makes $1 million a year. Then imagine a schoolteacher who is earning $75,000 a year.

The teacher bought her home in 1990 for $150,000, but the appraisal district says it is now worth $1.5 million. The doctor buys the house next door for $1.5 million. Even with the homestead exemption, the teacher pays a far higher proportion of her income in taxes. The doctor gets a lower effective-tax rate.

Most other states use a three-legged stool to raise revenue: A significant income tax based on the ability to pay; a modest property tax that reflects personal wealth; and a sales tax that covers a person’s consumption. All three taxes apply to individuals and companies.

When other states attempt to attract major capital investments, such as a Tesla factory, the governor offers tax credits. Since Texas’s property taxes are incredibly burdensome, Chapter 313 is the best incentive available.

In full disclosure, my wife’s job at a previous company included convincing school districts to approve Chapter 313 applications in return for wind energy facilities. Some argue that since only some locations are windy enough for renewable power generation, such projects can’t really move elsewhere. But a wind project in Texas that doesn’t get a Chapter 313 agreement cannot compete with a project in the state that does.

Wind projects also compete with natural gas from hydraulically fractured wells, which is used to generate electricity. To encourage more natural gas production, the Legislature lowered the severance tax rate on gas from these so-called high-cost wells, a very valuable tax break.

Some lawmakers are attacking Chapter 313 not because they are unfair to the average taxpayer but to defend the oil and gas industry. Sen. Brian Birdwell’s original legislation, SB 1255, sought to remove only “renewable energy electric generation” from the program to give natural gas an edge.

All those natural gas processing stations and pipelines that my investigative reporting colleagues identified that must be built in Texas? Birdwell’s legislation would have let them keep avoiding property taxes.

In a perfect world, no government would offer incentives to the private sector. Lawmakers would pass fair and balanced taxes that promote a more equitable society. But that ain’t happening here.

Texas lawmakers are on course to extend Chapter 313 for two more years without significant changes. There is no better outcome possible in the final weeks of this legislative session.

When they come back in two years, though, they should have a plan to overhaul the entire tax system. The fairest, simplest and best thing they can do is eliminate the school district property tax for everyone and replace it with a statewide income tax based on the adjusted gross income on our federal tax returns.

Not as much fun as burning Big Bidness in effigy, but a lot more productive.

Chris Tomlinson writes commentary about business, economics and politics.

twitter.com/cltomlinson

chris.tomlinson@chron.com

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