State Politics

First sales tax rate cut in Texas history is proposed

From left to right, Rep. Matt Krause, Rep. Ron Simmons, Rep. Dennis Bonnen and Rep. Dwayne Bohac walk away after Bonnen announced his plan for a sales tax cut at the Capitol in Austin, Texas, on Wednesday April 8, 2015.
From left to right, Rep. Matt Krause, Rep. Ron Simmons, Rep. Dennis Bonnen and Rep. Dwayne Bohac walk away after Bonnen announced his plan for a sales tax cut at the Capitol in Austin, Texas, on Wednesday April 8, 2015. Austin American-Statesman/AP

Texas would cut its sales tax rate for the first time in history under a House Republican plan that scraps homeowner tax relief sought by Gov. Greg Abbott.

The House plan revealed Wednesday sets up a pointed debate with the Senate over the best way to cut taxes. Senators are focusing on property tax cuts.

House Ways and Means Committee Chairman Dennis Bonnen, R-Angleton, estimated that the rate cut would reduce state revenue by $2.3 billion over the next two years and save the average family of four $172 a year. Bonnen said his approach is better than the Senate plan, which would increase homestead exemptions to lower school property taxes.

The current sales tax rate of 6.25 percent would fall to 5.95 percent under the sweeping tax package. On a $100 purchase, the lower rate would save a consumer 30 cents at the register.

Democrats countered that money generated from tax cuts would be better spent on roads or an expansion of pre-kindergarten. Republicans are sticking by their plans, and House members insist that their plan is the way to go.

“We should be cutting taxes that provide the greatest return to our economy and our Texas taxpayers, and we believe the plan we are providing you today is the one that does that,” Bonnen said.

He also proposed more than $2 billion in franchise tax cuts, largely through a 25 percent across-the-board reduction.

At $4.9 billion, Bonnen’s tax cut plan is bigger than the Senate’s $4.4 billion proposal, which would cut property taxes by more than $2 billion rather than targeting the sales tax. That measure is estimated to provide the average homeowner $206 in savings in the first year. Because the property tax is a local tax, the Senate plan would have to pay school districts to cover their losses in local tax revenue.

In a statement, Lt. Gov. Dan Patrick said that because Bonnen’s plan doesn’t include property tax cuts, it is “out of step with Texans, my office, the Senate and the Governor.” Abbott has said he would veto a budget that doesn’t include tax cuts for businesses and has spoken in favor of cutting property taxes.

The Senate has backed cutting the business franchise tax by 15 percent and exempting businesses that make less than $4 million annually from the tax altogether. Now, only businesses that make less than $1 million annually are exempt from the tax.

Bonnen, tasked by Speaker Joe Straus with leading the House’s efforts on tax cuts, has criticized the Senate’s plans to cut property taxes, questioning whether homeowners will even notice them. He predicted Wednesday that the Senate measure, if implemented, would see the same fate as the larger property tax cut the Legislature passed in 2006, which was widely viewed as underwhelming in the face of rising values and higher local tax rates.

Nelson disagrees

Senate Finance Committee Chairwoman Jane Nelson, R-Flower Mound, who has championed a property tax cut in the Senate, said it’s “good news” that both chambers are focused on tax relief. Yet she questioned whether voters would view a sales tax cut as positively as a property tax cut.

“I have never had a constituent tell me they want to see a cut in sales tax — ever,” Nelson said. “I’ve had lots of constituents complain about property taxes.”

Bonnen said his plan would have a wider effect than the Senate measure because a property tax cut would affect only homeowners while a sales tax cut would help renters and businesses as well.

“In short, this plan delivers more tax relief to more taxpayers, which means it will yield more economic growth,” Bonnen said.

Several business groups have criticized the Senate plan, arguing it doesn’t provide enough relief to businesses, particularly larger ones. Soon after Bonnen unveiled his plan, Texas Association of Business President Bill Hammond praised it.

“The House tax cut plan will benefit all Texas citizens and businesses,” Hammond said in a statement. “It is fair, balanced, and is a winner for everyone.”

Texas voters, particularly those who participate in Republican primaries, have expressed more frustration over local property taxes than the sales tax.

Patrick made property tax cuts a centerpiece of his successful campaign to unseat Lt. Gov. David Dewhurst.

Bonnen said Republican primary voters would be happy that lawmakers are debating what taxes to trim so vigorously.

“I don’t think anyone is going to get in trouble for cutting one tax over another,” Bonnen said.

Responding to Patrick’s criticism, Bonnen said that if the lieutenant governor “really wants to defend a smaller tax cut than what my plan provides, I’m happy to have that debate.”

Democrats dissent

After Bonnen’s news conference, Democratic Reps. Trey Martinez Fischer of San Antonio, Chris Turner of Grand Prairie and Sylvester Turner of Houston discussed Bonnen’s plan, saying it is presumptuous considering the state’s needs that haven’t been addressed.

Sylvester Turner said he first heard the details of Bonnen’s plan at the news conference and called it “insulting” that House Democrats were not shown the plan beforehand.

Chris Turner said lawmakers have ways other than tax cuts to provide tangible benefits to residents. “Texas parents would feel the impact if we did the right thing and passed full-day pre-K and funded it,” he said. “They’d feel that.”

Staff writer John Gravois contributed to this report, which includes material from The Associated Press and The Texas Tribune.