The Republican presidential debate started to look more like a Texas showdown Monday night when Rep. Ron Paul, R-Texas, accused his governor and fellow GOP candidate Rick Perry of doubling his taxes.
“I’m a taxpayer there. My taxes have gone up. Our taxes have doubled since he’s been in office,” Paul said in response to the question about whether Perry should get credit for Texas’ job growth. ”So I would put a little damper on this but I don’t want to offend the governor because he might raise my taxes or something.”
But while Paul’s taxes have gone up in the decade Perry has been governor, the increase seems to have resulted more from the rising value of his house than policies handed down from the State House.
Paul paid $1,884.42 in county and local taxes in 2000, the year Perry was first elected governor, according to the Brazoria County Tax Office. Texas does not have a state income tax. He paid $2,440.37 last year, about 23 percent more. The value of Paul’s house, which affects how much property tax he pays, rose from $150,000 to about $300,000 during the same 10-year.
Even on the revenue side, Texas’ taxes did not double. The Lone Star state collected about $10 billion more in 2010 than it did a decade ago, an increase of about 29 percent.
“I can tell you that taxes that the Legislature votes on sure have not doubled,” said Joshua Trevino, vice president for communications at the Texas Public Policy Foundation, a free-market policy think tank. “It is possible his property tax went up, but that’s not something Austin or the governor has anything to do with.”
The effective tax rate was 7.1 percent when Perry took office in 2000, according to Tax Foundation estimates. Only five states had lower tax burdens. That burden had risen slightly to 7.9 percent by 2009, the most recent year for which data is available. But the Lone Star state’s tax burden remained the fifth lowest in the country.
Mark Robyn, an economist with the Tax Foundation, said the change was “not that significant.” He said the 0.8 percentage point increase could be the result of increases in sales tax revenue because “in a state that is growing economically, it’s conceivable that they would collect more sales tax revenue because people are spending more.”
“I think politicians often get too much blame and too much credit for the results,” Robyn said.
In Perry’s 10-year tenure in the Texas state house, the only major change to Texas’ tax code was a 2006 policy that revamped property taxes in order to comply with a state Supreme Court ruling that found Texas’ school financing system unconstitutional.
Perry called a special session of the state Legislature in which lawmakers passed a proposal to decrease property taxes by up to a third and increase the state’s share of education funding from 34 percent to 50 percent. The property tax breaks were offset by increasing the cigarette tax from 41 cents to $1.41 per pack and increasing the number of companies that pay franchise tax on business profits.
“For years, Texas has needed a new tax structure that protects jobs, reflects the modern economy, broadens the tax burden and lightens the load of property owners,” Perry said in an March 2006 news release, according to Bloomberg. “It is a responsible plan that appeals to Texans’ sense of fairness.”
Trevino said that because Paul has a private medical practice, his business might have been affected by the margins tax, which could be the source of his “our taxes have doubled” claim.
The Paul campaign could not immediately be reached for comment.
The new business tax, or margins tax, has been a point of contention for some Texas businesses because it taxes gross revenue rather than profits.
But Perry claims the tax is a success because it reduced the overall business tax rate by replacing the state’s 4.5 percent franchise tax with a 1 percent margins tax. Although the overall rate went down, tax revenue increased from $5.8 billion in 2006 and 2007 under the franchise tax to $8.7 billion in the first two years under the margins tax.
“I think Perry’s margin tax in Texas is a destructive type of tax,” Joseph Henchman, the vice president of state projects for the Tax Foundation, told ABC News in August. “You have taxes being levied on taxes based on how many levels of production a product has. It basically encourages people to form conglomerates purely for tax reasons, which is economically destructive. You have these taxes pyramiding on each other so the effective rate is higher.”
Perry responded to criticism that the margins tax was an added burden on small business in 2009 by signing a bill allowing about 40,000 small businesses to opt out of the tax by increasing the income exemption from $300,000 to $1 million.
“As a result of this legislation, roughly 40,000 small businesses across Texas will be able to hang onto more of their dollars and plow them back into their businesses in the form of new hires and new equipment,” Perry said after signing the bill. “There aren’t many states that could extend a tax cut to small businesses in these tough economic times. I am proud that Texas has.”