How the Federal Tax Bill Threatens State and Local Public Services

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The tax bill currently making its way through Congress would make it more difficult for Texas and our local governments to provide the public services that we all need.

Under current law, you do not have to pay federal taxes on the amount you have already paid in state or local taxes. Specifically, taxpayers can deduct property and sales taxes when calculating the amount of their income subject to the federal personal income tax.

But under the new tax bill, sales taxes would not be deductible at all, and the property tax deduction would be capped at $10,000. In fact, under the Senate version of the bill, the property tax deduction would be completely eliminated in 2025.

If Texans can’t deduct their property taxes from their federal income tax bill, then they will be essentially paying more money in taxes without any corresponding increase in services. Through the deduction, the federal government has been absorbing a portion of the cost to property taxpayers of funding local services.

In 2015, 2.3 million Texas households used the property tax deduction, reducing their taxable income by $14.8 billion.

Most property taxes that Texans pay go to support our public schools, which require higher property tax rates to make up for inadequate state support. The rest of our property taxes go to support our cities, counties, community colleges and hospital districts. Our schools, roads, and public safety depend heavily on property taxes.

Our sales taxes go primarily to the state, making up almost 60 percent of Texas’ tax revenue. Cities, counties, and local transit authorities also rely on sales taxes. About 2.2 million Texans deducted $4.8 billion in sales tax payments in 2015.

If the new tax bill becomes law and caps or eliminates these deductions, then the cost to Texas households of supporting state and local public services will increase. This shift would make it more difficult for the state and for local governments to maintain the revenue necessary to improve vital public services.

Dick Lavine focuses on building state and local revenue systems that meet Texans' needs. Before coming to the Center in 1994, he was a Senior Researcher at the House Research Organization of the Texas House of Representatives for ten years. He is a Chartered Financial Analyst and served for many years as a member and chairman of the Board of Directors of the Travis Central Appraisal District. He is also a member of the Executive Board of AFSCME Texas Retirees, the statewide union local of retired public employees. The Equity Center named him the 2011 Champion for Equity for his work to reform our tax system to ensure it can adequately support public education and other public services. He earned a Bachelor of Arts in Economics, magna cum laude, from Harvard College in 1969, and a Doctor of Jurisprudence, cum laude, from the University of Pennsylvania in 1975.

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