The Governor, Lieutenant Governor, and the Speaker of the House have all stressed the importance of property tax relief. The Comptroller too. And now the Texas Legislature has weighed in. Yesterday, the House and the Senate released their introduced budgets (see here and here), providing an outline of the tax relief package that could be passed in the near future. And one thing is clear: If some version of it is passed, then Texas taxpayers are in for a historic measure of tax relief.
In their respective budgets, both the House and Senate propose $15 billion in tax relief. Approximately $12 billion of that amount would be returned through further tax rate compression, while the other $3 billion would come in the form of an increase to the residence homestead exemption, bumping it from $40,000 to $70,000 for qualifying homeowners. As a package, this level of tax relief exceeds past tax relief efforts (at least without adjusting for inflation) and achieves Governor Abbott’s call for “the largest property tax cut in the history of the state of Texas.”
That’s exceptionally good news and well worth celebrating on its own. But as Texas’ historic tax relief measure works its way through the process (and perhaps even grows larger!), policymakers should remember a few things.
The first is that the cuts must truly reduce what families pay from year to year. Governments at all levels play the game of “lowering the increase,” in which politicians claim that reducing the amount your taxes would have increased counts as a “cut.” It doesn’t. If you pay more, you pay more, and no one gets any credit for a decrease in the increase. Property tax bills must go down.
The second is that taxpayer gains should be guarded. How local governments collect and spend property tax dollars is a complicated process. Reforming it will be difficult, frustrating, and painful for some. But the Legislature must implement structural reforms that prevent Texans from seeing their tax bills jump back up every few years. With the state flush with cash and an electorate demanding action, there has never been a better opportunity to fix it permanently.
For our part, The Texas Public Policy Foundation has an aggressive yet reasonable plan to reduce property taxes and ultimately eliminate nearly half of what taxpayers currently pay. By replacing the M&O property tax local governments collect with state general surplus dollars, our plan would reduce the tax Texans pay every year until it is eliminated after 10 years.
The Foundation has numerous other ideas too that could strengthen this sort of tax reform initiative even further. Policymakers do not lack for options and opportunities to radically improve the state’s tax system.
Hence, at the end of the legislative session, the public should judge policymakers’ success or failure on the basis of three conditions:
- Providing the largest tax cut in state history
- Real relief for families that comes in the form of lower tax bills
- Structural reforms that help guard any gains
Texas has an admirable record of fiscal responsibility and protecting taxpayers. If the legislature stays consistent with those principles, Texas will solve its property tax problem and remain the economic engine of the country.