Yesterday, Talmadge Heflin, Director of the Center for Fiscal Policy, testified on replacing the property tax with a reformed sales tax as a way to spur job creation and growth in personal income. The gist of Mr. Heflin’s testimony was this: Texas can create jobs and income if it does away with its property tax system and replaces the revenues with a reformed sales tax.

As the Foundation has stressed in the past, Texas has the 14th highest property tax burden in the nation, which is proving to be a major deterrent to business and investment. Taxpayers and businesses need more than just a Band-Aid, they deserve a lasting solution; one that will not only alleviate the tax burden, but that will also spur on the Texas economy.

Cue the plan to replace part or all of the property tax with a reformed sales tax.

Based on an analysis from Dr. Arthur Laffer and associates, Enhancing Texas’s Economic Growth through Tax Reform, it is estimated that Texas can abolish property taxes entirely and move toward a consumption-based tax, pegged at either 15.7 percent or 11 percent, all while preserving revenue neutrality. By shifting to a more consumption-oriented form of taxation, the state stands to benefit from:

    • An increase of $3.6 to 3.68 billion in personal income in the first year alone;
    • A cumulative increase of $22.85 to $63 billion over a five-year time horizon; and
    • A net gain of new jobs ranging from 124.9 thousand to 337.4 thousand over five years.

If for whatever reason, lawmakers balk at this plan, then the minimum they should achieve in the next session, according to Mr. Heflin, is the replacement of school district maintenance and operations taxes. This plan, while a scaled-down version, would still go a long way towards reducing the average Texan’s property tax burden.

Whatever the case, it’s time for tax reform in Texas.