Debra Medina, a former Republican gubernatorial candidate and tea party favorite, complained that property is the only thing that is taxed over and over again, unlike income or sales.
"We have been in these halls for years telling you that the property tax system is broken. We haven't seen the fire in the Legislature to get it fixed," Medina told the House Ways and Means Committee. "We would do well to be rid of it completely."
Medina said she supported collecting more revenue through sales taxes and a reformed business tax to make up for lost revenue. Talmadge Heflin, a director at the Texas Public Policy Foundation, said that applying the sales tax to real estate transactions could also help make up the revenue lost by ending all property taxes in the state.
The committee invited conservative activists, representatives from the State Comptroller and county tax assessors to testify on Texas' property tax system. No liberal groups testified Thursday.
Texas has no income tax, so governments rely on a combination of property, sales and business taxes. School districts are primarily financed through property taxes.
How the state collects property taxes, particularly to pay for public schools, will be an important subject when the Legislature meets next year. More than 60 percent of Texas' school districts have sued the state over what they say is an unconstitutional finance system. A trial is scheduled for October. Most observers say the judge is likely to find the current system unconstitutional and demand that lawmakers come up with a new one.
Rep. John Otto, R-Dayton, expressed concern that ending the property tax could hurt the state's credit rating. John Heleman, chief revenue estimator for the state comptroller, said property taxes are a more stable source of income than sales taxes, which plummeted during the Great Recession and created budget problems across the state.
Stable revenue is one thing credit ratings agencies look for when evaluating state bond debt. Otto also noted that no state has ever done away with property taxes.
Rep. Naomi Gonzalez, D-El Paso, questioned whether an increased sales tax would hurt middle-income and poor people. She said under the current system, the rich are already paying a smaller percentage of their income in state and local sale taxes than the average Texan. Heflin replied that while that may be true, it is better than other tax systems.
Peggy Venable, president of the Texas chapter of Americans for Prosperity, also called on the state to address the $320 billion in debt generated by local authorities. Much of that must be repaid by future property tax collections.
"This has a grave implication when we talk about local property taxes, because it's sold to the taxpayers as just a few pennies." Venable said.
She said there should be limits on how much debt a local authority takes on and that taxing authorities should have to reveal their debt level when asking voters to approve new bonds. She complained that school officials in particular manipulate the public into supporting bond packages.
"As long as we have government schools, that will be a problem," said Venable, who supports privately-operated schools. "If we interject competition in the system we might see the system begin to work."
County and city officials agreed that notices provided to the public when property taxes change are confusing. They said the state laws requiring "truth-in-taxation" need to be updated to allow tax assessors to provide simpler language.
