Texas needs to spend at least $80 billion to eliminate the state’s property taxes, state budget officials said recently. This is a reality check for conservatives whose goal is to halt property taxes altogether.
Texas Property Taxes Unsustainable
Property taxes are astronomical for Texas government.
Over several years, Republican legislators have been diligently advocating for a reduction in Texas’ property taxes, which currently rank among the highest nationwide. There is a faction of conservative voices in Texas with big hopes of eliminating certain property taxes, a proposal facing critique for its perceived unfeasibility due to its substantial financial implications, according to news media outlets on September 5.
But there may be a dissenter among the Republicans: Lt. Gov. Dan Patrick expressed skepticism about eliminating property taxes. Earlier this year, Patrick tasked lawmakers with tallying the cost.
Lawmakers now have access to detailed financial data.
For example, the elimination of all property taxes levied by school districts in tax year 2023 would have amounted to a significant loss of $39.5 billion for the state, as per the information disclosed to the Texas Senate Finance Committee by the Legislative Budget Board. School property taxes, crucial for funding purposes like educator salaries and infrastructure development, constitute a substantial portion of a property owner’s overall tax obligations.
To paraphrase Winston Churchill, ‘Property taxes are the worst form of funding government except for all the others.’
Furthermore, the state would have been required to allocate an additional $42 billion to cover the property taxes gathered by municipalities, counties, and special taxing districts in the previous year.
Altogether, a total of $81.5 billion would have been necessary for the state to fully eliminate all local property taxes. This sum exceeds half of the $144 billion earmarked by lawmakers for Texas’ existing biennial budget.
Therefore, a substantial amount in tax cuts would greatly impede the state’s capacity to cover other expenses and might necessitate a considerable increase in sales tax, as noted by lawmakers two weeks ago. It seems that committee members are generally not inclined to pursue this course of action.
“This is not something that you can find $81 billion on a per-year basis and not have a major impact on the remaining sales tax rates because that is a huge amount of money to be able to replicate,” said state Sen. Paul Bettencourt, a Houston Republican and Patrick’s chief lieutenant on property taxes.
Texas does not impose a state property tax; instead, property taxes are collected by various entities such as cities, counties, school districts, and special taxing authorities. Over the past decade, property tax bills have increased alongside the state’s economic growth, as property values and tax rates have surged.
To curb the escalating property tax bills, state legislators have allocated significant funds and imposed stricter limitations on the amount of additional property taxes that school districts and local governments can raise. Recently, a $12.7 billion package was passed, which included targeted tax incentives for homeowners and financial support for school districts to reduce the burden on property owners. These initiatives seem to be showing positive results for homeowners.
School Taxes Reduced by Ten Percent
The amount of property taxes school districts collected fell by nearly 10% between 2022 and 2023, according to figures provided by the Texas Comptroller’s Office. Total property tax collections, however, fell less than 1% in that time frame, driven by a 10.3% increase in property taxes collected by cities, counties, and special taxing districts.
Texas Gov. Greg Abbott also said earlier this year that the Legislature should continue to pound away at property taxes “until we get rid of the school property tax rate in Texas.”
Immoral Burden
Eliminating the property tax rate earmarked for funding school district maintenance and operations has historically been a desired outcome within certain circles of Texas conservatism. However, attempts to actualize this ambition have invariably met with staunch opposition in the legislative arena. Nonetheless, a contingency of conservative intellectuals argue in favor of a gradual reduction of property taxes with the ultimate goal of complete elimination over an extended period.
“Property taxes are not just a financial burden,” said Vance Ginn, a conservative economist who runs an independent economic consulting firm. “They are fundamentally immoral.”
Elimination Risks Sales Tax Rise
Even if legislators were inclined to eliminate property taxes, the challenge lies in the task of securing alternative revenue sources to compensate for the lost funds. Texas operates without an income tax, predominantly funding government services through sales taxes in addition to property taxes.
Consequently, abolishing property taxes would necessitate a substantial increase in sales tax rates, a proposal historically met with strong public disapproval. To entirely negate property taxes, Texas would need to overly double its current sales tax rate, a recent analysis by the Texas Taxpayers and Research Association found.
Sales taxes can present challenges as a source of government revenue due to their susceptibility to economic fluctuations and changes in consumer behavior. Lower-income households bear a disproportionate burden of sales taxes compared to higher-income households since sales taxes represent a larger proportion of their income.
“Hitting low- and middle-income Texas families with this dramatically higher rate would seriously damage both their household budgets and the state economy as a whole,” Shannon Halbrook, a fiscal analyst at the left-leaning Every Texan, told lawmakers.
Reporter CJ Walker can be reached at [email protected]
