It happens every session. There is a bill proposed that exempts some group from paying all or part of a certain tax. Whether it is the sales tax, property tax, franchise tax, motor vehicle sales tax, or gas tax someone is going to get a perk. On thier face, these exemptions may seem like a good idea. In general conservative, limited government, principles would lead one to believe that restricting government income is a good thing. Who doesn’t want government to have less money, right? But when you cross examine that thinking, we are forced to do a deeper dive into what exactly those principles mean and how they are applied.

The Texas Comptroller put out a report in February of 2017 that said the aggregate exemptions for the above mentioned taxes will total an estimated $55.5 billion. $11.8 billion of that coming from school property tax exemptions. In 2015 that number was $54.2 billion with $9.8 billion coming from school property tax exemptions. Over the course of one session, the legislature managed to give $1.3 billion in exemptions. To give you some perspective, $55.5 billion is 52% of the General Revenue appropriated in the 84th Regular Session or even more frightening, nearly 83% of voter approved tax-supported debt for school districts. Now, the complexities of Texas Government budgeting mean that these numbers are not all directly relatable, however the point is clear. Exemptions have consequences. Though many seem harmless enough, when added together they produce a mind-boggling number.

While some of these exemptions can be enjoyed by the vast majority of the population, many of them are exclusive to one group. Those who believe in limited government and fiscal responsibility like to say that taxes should be few and when they must exist they should be broad based and low rate. Keeping this principle in mind, what is the effect of an exemption?

The obvious initial observation is that it narrows the base. If you allow a certain group based on whatever criteria one may choose, to not pay or pay a reduced rate of a tax, you have fewer people paying the tax. In the case of the property tax, the State is taking away a source of revenue for local government. How does a school district respond to a reduced income stream?

While wishful thinkers may argue that districts will respond to lost revenue by controlling spending, it is a safe bet that they will instead raise tax rates (or appraisal values) for the remaining taxpayers. So, while satisfying the good feelings associated with passing an exemption for a sympathetic class, the very principle of limited government is being violated by narrowing the tax base and raising the tax burden for those who do not enjoy the exemption.

It is time to treat our tax policy like our justice system should operate, with a blindfold. The reason Lady Justice is blindfolded is so that one is not treated differently from the other, all are equal and judged based on the merits of the law. Taxes should be broad based, set at a low rate, and applied equally. Principle should be immune to emotion. In President Lincoln’s last speech on April 11, 1865 he concluded by saying “Important principles may, and must, be inflexible.” To remain principled, we must fight the urge to treat one group differently than another in public policy-making.

Posted March 07, 2017 by Michael Bullock