Sales Tax Cut a Key Piece in Bonnen's $4.9 Billion Tax Cut Plan

_{*Editor's note: This story has been updated with comment from Lt. Gov. Dan Patrick and Senate Finance Chairwoman Jane Nelson.}

Setting up a pointed debate between the Texas House and Senate on the best way to cut taxes, House Republicans on Wednesday unveiled a $4.9 billion plan to cut both the state sales tax and the margins tax paid by businesses.

House Ways and Means Chairman Dennis Bonnen, R-Angleton, laid out a plan centered on cutting the state sales tax rate from 6.25 percent to 5.95 percent. It would be the first state sales tax rate cut in Texas' history, Bonnen said. He estimated that the rate cut would reduce state revenues by $2.3 billion over the next two years and save the average family of four $172 per year. Bonnen made clear that he believed his approach is better than the Senate plan, which would increase homestead exemptions to lower local school property taxes. 

“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.

Bonnen also proposed more than $2 billion in cuts to the franchise tax rate, largely through a 25 percent across-the-board cut to that tax.

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 released Wednesday afternoon, Lt. Gov. Dan Patrick said that because Bonnen's plan doesn't include property tax cuts for homeowners, it is "out of step with Texans, my office, the Senate and the Governor." Gov. Greg 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 franchise tax altogether. Currently, only businesses making less than $1 million annually are exempt from the franchise tax.

Bonnen, who House Speaker Joe Straus tasked with leading the House’s efforts on tax cuts this session, has been critical of efforts by the Senate 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.

Senate Finance Chairwoman Jane Nelson, R-Flower Mound, who has championed a property tax cut in the Senate, said it was "good news" that both chambers were so focused on tax relief. Yet she questioned whether voters would view a sales tax cut as positively as they would 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 be more impactful than the Senate plan, saying that a sales tax cut would be felt by renters and businesses, while the Senate’s property tax cut would only affect homeowners.

“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 tax plan, arguing it doesn't provide enough relief to businesses, particularly larger ones. Soon after Bonnen unveiled his tax cut plan Wednesday, 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 state’s sales tax. Lt. Gov. Dan Patrick made implementing property tax cuts a centerpiece of his successful campaign to unseat David Dewhurst. Bonnen said he believed Republican primary voters would be happy that lawmakers were debating what taxes to cut so vigorously.

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

After Bonnen's press conference, Democratic state Reps. Trey Martinez Fischer of San Antonio, Chris Turner of Grand Prairie and Sylvester Turner of Houston discussed Bonnen’s plan, saying it was presumptuous given the state needs that haven't been addressed. Sylvester Turner said he first heard about details of Bonnen’s plan at Wednesday’s news conference and said it was “insulting” that House Democrats were not shown the plan before it was unveiled publicly.

Chris Turner said there were other ways to provide tangible benefits to Texans than tax cuts. “Texans 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.”

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