As the biennial session of Texas Legislature enters the home stretch, state legislators are currently hung up in a dispute over competing property tax relief proposals to better let Texans prosper. Both the Texas Senate and House proposals would provide billions of dollars worth of relief to address high and rising property tax burdens, which is understandably the top tax priority for Texas lawmakers. Though Texas has the nation’s 6th lowest overall average state and local tax burden, Texas also has the country’s sixth highest average property tax burden on homeowners.
The Texas Senate’s proposed package of $15.1 billion includes $5.3 billion to maintain past relief efforts so there’s $9.8 billion in new tax relief. This new tax relief includes amounts to raise the homestead exemption, compress school district maintenance and operations (M&O) property taxes that’s essentially controlled by the state’s school finance formulas, and provide business personal property tax relief.
The House’s package of $17.3 billion includes the $5.3 billion for old relief so $12 billion in new relief. They include the entire $12 billion for compression of school district M&O property taxes and a lower of the annual appraisal cap from 10% on homesteads today to 5% for all real property.
Unfortunately, both of these packages don’t provide enough of new property tax relief to support record relief that was provided in 2008-09 of $14.2 billion and is now about $20 billion adjusted for inflation. This should be addressed in the budget process to increase the amount for new relief to reach the record relief that the Governor, Lieutenant Governor, and Speaker of the House have advocated for this session that will ultimately help Texans during an affordability crisis for too many.
And when considering the need for permanent, meaningful relief, the gold standard of the approaches considered is compression of school district M&O property taxes which is nearly half of the overall property tax burden which will benefit homeowners, renters, and businesses. This is where both chambers should point their efforts, toward maximum compression. Maximum compression, rather than raising the homestead exemption, would be the best outcome for taxpayers. The goal should be to lower property tax bills, not just slow the growth temporarily or shift the burden around.
The Texas Senate is often more in line with conservative policy preferences. Recent examples include the Texas Senate’s passage of legislation to ban taxpayer-funded lobbying, or its recent vote to provide families with education savings accounts, both of which have been blocked or stalled in the Texas House. But when it comes to the competing property tax relief proposals now pending in Austin, the Texas House has put forth the superior approach that features a much larger amount of compression. And finally, there should be a focus on spending restraint at the state and local levels, which should include a local spending limit, such that any tax relief will be felt by taxpayers and maintained over time.
The below breakdown from Texans for Fiscal Responsibility highlights the differences between the House and Senate’s property tax relief proposals:
Economist Dr. Vance Ginn, who is a senior fellow at ATR, said the following about the competing property tax relief proposals now pending Texas: “Texas has a historic opportunity to provide much-needed property tax relief with nearly $33 billion in surplus for the current biennium plus extra taxpayer money available in the upcoming biennium which should be returned to taxpayers. By providing at least $20 billion in new compression of school district M&O property taxes, Texas can take a large bite out of the biggest part of burdensome property taxes, with spending limitation being the pathway toward putting these taxes on a path to elimination. Doing so would make Texas an even greater economic juggernaut as economic headwinds nationally and from progressive states hit the Lone Star state and help Texans have the best opportunities to prosper.”
Texas is one of the fastest growing states in the nation and has been a leader in economic freedom and and pro-growth tax policy over the years. This time should be no different. Texas lawmakers must not sit on its laurels as other states are also flattening and eliminating personal income taxes and working toward sustainable budgeting. The coming weeks present an extraordinary opportunity that must not be missed by leadership and legislative members in Texas.