In this Let People Prosper episode, we discuss the latest Tiger Woods victory and the start of the NBA Playoffs. We go on to discuss the Texas Legislature's latest on property tax reform and lack of spending restraint, key measures of reining in out of control local governments restricting liberty, and efforts to reform the criminal justice system so it punishes and rehabilitates people. 

​#letpeopleprosper

In this Let People Prosper episode, we discuss the key elements of real property tax cuts (slower growth rates and lasting tax reductions), movement afoot to eliminate civil asset forfeiture, and potential expansions in local liberty that are being discussed at the Texas Legislature. As we get closer to the end of session, these are critical aspects that you don't want to miss. 

​#letpeopleprosper

In this Let People Prosper episode, we discuss how to unveil government excess whether it be with pension obligation bonds, bail (register for upcoming TPPF event), occupational licensing burdens reduced for military spouses, TRS pension structural problems, and the Texas House budget that increases  far more than the average taxpayer's ability to pay. 

#letpeopleprosper

​In this Let People Prosper episode, we discuss issues related to responsible governing, like passing budgets that remain within the average taxpayer's ability to pay, local debt transparency, and criminal justice reforms where the time matches the offense. This is all essential to improving the Texas Model based on limited government that has long supported economic prosperity, as noted by today's state-level jobs report discuss.

#letpeopleprosper

In this Let People Prosper episode, James Quintero, Chance Weldon and I discuss the Conservative Texas Budget related to SB 500; Teacher Retirement System (TRS) of Texas related to SB 12; superintendent pay reform in HB 880; local debt issues in HB 440, HB 477, and SB 30; and a legal case regarding child safety. 

​#letpeopleprosper

In this Let People Prosper episode, James Quintero, Dr. Derek Cohen, and I discuss key bills regarding local liberty issues related to debt transparency (HB 440 & HB 477), criminal justice reform efforts, property taxes (HB 2, HB 705, HB 648), and teacher pay/retirement (SB 3/SB 393).

#LetPeopleProsper

In this Let People Prosper episode, James Quintero, Dr. Derek Cohen, and I discuss the following:

1. James highlights local debt transparency in SB 462;
2. Derek recaps hearing on over-criminilization and mentions reforming civil asset forfeiture in HB 404 and HB 1615; and
3. I provide an overview of my testimony against raising the minimum wage (written testimony & watch here at 2:53:00 mark) and note the upcoming House Ways & Means Committee hearing on HB 2 to lower the rollback rate to 2.5 percent and HB 705 to allow local governments to swap their property tax with a sales tax.  

Don't miss the upcoming Current Events Friday episode. #LetPeopleProsper

In this Let People Prosper episode, James Quintero, Derek Cohen, and I discuss key topics this week for Current Events Friday.

• Amazon's decision to not build in New York after receiving offer of costly $1.525 billion in tax incentives (i.e. govt favoritism) but disliked their otherwise poor business environment (see Economic Freedom of North America report);
• Texas Committees' organizational meetings overview (e.g. House Criminal Jurisprudence, House Corrections, & House Ways & Means); 
• Legislation filed on paid sick leave and other poor local government mandates (e.g., SB 15 & HB 1654); and
• Update on property tax reform with a committee substitute for SB 2 passing out of the Senate Property Tax Committee with an opt-in provision. 

More to come on Monday. #LetPeopleProsper

In this Let People Prosper episode 73, we discuss efforts to change Texas' rainy day fund to lower the economic stabilization fund (ESF) cap and impose a new endowment fund (SB 69), overview of an organizational meeting by the House Committee on Criminal Jurisprudence, and the latest on property tax relief that info on SB 2 in the Senate Committee on Property Tax today and the organizational meeting by House Ways & Means Committee on Wednesday.

#letpeopleprosper 

It's Current Events Friday!

In this Let People Prosper episode 72, James Quintero, Dr. Derek Cohen, and I discuss this week's current events. The big stories this week are Governor Abbott's State of the State, President Trump's State of the Union, and property tax hearing held by the Texas Senate Committee on Property Taxes. We dive into each of these issues to consider which government actions preserve liberty and which ones don't. 

Regarding property taxes, there's some hope in sight! Senate Bill 2 could provide historic property tax reform (read my written testimony and watch testimony at time 1:13:10) that would put in place a 2.5% property tax revenue rate that would trigger an automatic election in November for a local government that wanted to increase their revenue above that point. This reform is an essential element for any property tax relief of lowering property tax bills like TPPF’s plan to eliminate the school M&O property tax over time by slowing spending growth. 

​#letpeopleprosper

In this Let People Prosper episode 71, I chat with James Quintero and Dr. Derek Cohen of TPPF about the benefits of bail reform (SB 628 & SJR 37), the costs and benefits of the latest version of reforming the Teacher Retirement System of Texas (SB 393) (more on TRS problems here), and what to expect in Gov. Abbott's State of the State (like a possible emergency item of property tax reform).

#letpeopleprosper 

In this Let People Prosper episode 70, I chat with James Quintero and Dr. Derek Cohen about the recently released bills that would both provide property tax reform with the same language (Senate Bill 2 & House Bill 2). Read TPPF's press release here. 

The press conference attended by Governor Greg Abbott, Lt. Governor Dan Patrick, Speaker Dennis Bonnen, Chairman Paul Bettencourt, and Chairman Dustin Burrows shows the unity of this particular measure. These bills would provide property tax reforms to increase transparency, change up the appraisal system, and impose a revenue trigger of an automatic rollback election: (1) if revenue is set to grow by more than 8% for local tax jurisdictions with less than $15 million in total revenue from sales and property taxes, and (2) if revenue is set to grow by more than 2.5% for all other taxing entities.

​This is a step in the right direction to slowing the growth of skyrocketing property taxes and we look forward to working with leadership and legislators to lower tax bills by limiting state spending as well. 

We also discuss the benefits of SB 523, which would restructure occupational licenses for those with particular criminal records. 

#letpeopleprosper

In this Let People Prosper episode 68, I interview James Quintero, Director of the Think Local Liberty project at the Texas Public Policy Foundation, about reining in skyrocketing local property taxes, increasing local debt transparency, and highlighting frivolous local spending. High taxes and debt are always and everywhere a spending problem. James makes that point clear in this episode. Don't miss it!

​#letpeopleprosper

Perhaps no issue unites Texans across the state like the need to reduce property taxes. But any property tax reform will have consequences that affect how we fund education, pay for roads, grow our economy, improve access to health care, and more. Experts and policymakers take on this critical question and look for solutions in the 86th Legislature.

Great discussion with Dr. John Diamond from Rice University's Baker Institute, Senator Paul Bettencourt, Judge Glenn Whitley, and Representative Drew Springer. 

Read more about TPPF's plan to cut property taxes and find out how much you would save under this plan over time here. 

In this Let People Prosper episode 67, let's discuss the importance of sustaining and improving the Texas Model of no personal income tax, relatively low taxes, relatively less government spending, and sensible regulation that allow entrepreneurs opportunities not available elsewhere. This can be boiled down to: Institutions Matter. Let's recall previous discussions highlighting these key points while noting how Texas led the way in job creation again in 2018. 

#LetPeopleProsper

In this #LetPeopleProsper episode 66, let's discuss what happened during Week 2 of the 86th Texas Legislature.

My op-ed on the need to ban a personal income tax in Texas in the Victoria Advocate was tweeted by Governor Greg Abbott. That op-ed also noted the need to cut the school maintenance and operations property tax with TPPF's plan of simply slowing government spending growth. And I had another piece in The Hill that noted the benefits of free trade. 

Finally, the Legislative Budget Board adopted a spending limit based on population growth and inflation last Friday. Near the end of the discussion (watch starting at 6:20), Chair Jane Nelson notes, at Speaker Dennis Bonnen’s request, that The Honorable Talmadge Heflin said TPPF wouldn’t include Harvey-related money in budget figures. This is correct as long as it is transparent and one-time funding. It's a pleasure to work with him every day. Regarding the recent budgets, we posted a blog post with more information comparing the House and Senate budget recommendations with the Conservative Texas Budget. 

#letpeopleprosper

In this Let People Prosper episode 64, let's discuss the Texas Public Policy Foundation's Policy Orientation, which was a sold out event that helps define the narrative for the 86th Texas Legislature, and highlight the recent spending limit set by the Legislative Budget Board.

The following are the panels that I moderated or participated in some capacity and my key takeaways with resources:

• Panel on the costs and mostly benefits of NAFTA. We need freer trade.
• Panel on TRS pension. There's a crisis coming with the Teacher Retirement System of Texas if nothing is done.
• Panel on property tax relief efforts. Must lower property taxes. See here how your property tax burden would decline over time with TPPF's plan. 
• Panel on the Texas state budget. The upcoming budget could be third straight Conservative Texas Budget but there are many demands for taxpayer dollars, which taxpayers should be prioritized in budget process for tax relief.
• Panel on spending limits. There is a need to reform the state's spending limit to one based on population growth and inflation so that the the tax burden better matches average taxpayer's ability to pay.
• Watch my brief speech of my life story and introduction of Americans for Tax Reform President Grover Norquist
• You can watch all of the keynote speeches and other panels here.

 The other big news on Friday was that the Legislative Budget Board (LBB) set the state's spending limit for the upcoming 2020-21 budget. This spending limit is on only general revenue not dedicated by the constitution which is less than half of the total budget. While statutorily the spending limit should be based on growth in personal income, last session the LBB chose the rate based on population growth and inflation. This time the spending limit is 9.89% for the 2020-21 budget, which is based on an increase of 8.39% in population growth and inflation and 1.5% for Harvey.

​This is another good sign that the LBB continues to use a measure for the limit that better matches the average taxpayer's ability to pay than the inappropriate growth rate of personal income.  This spending limit is in-line with the recent BRE increase of 8.1% in general revenue-related funds and provides funds available to cover needed expenses along with property tax relief. Specifically, the Legislature could use half of the funds of about $4.4 billion for spending and 90% of the rest of the funds of about $4.1 billion to buydown the school maintenance and operations property tax.

​Despite the economic success of the Texas Model of fiscally conservative governance, a skyrocketing local property tax burden remains one of the state’s most pressing policy challenges. Property taxes have been growing faster than Texan’s ability to pay for them, increasing the need to eliminate them.

​You get less of whatever you tax. This key economic insight suggests the best type of taxation does the least economic harm, achieved by limiting government spending to only securing liberty. The evidence is clear that Texas should never have a personal income tax. There is nearly a consensus that is true, but there is a growing consensus that Texas should eliminate property taxes that keep Texans renters forever. 

​ Property taxes are an inefficient type of tax. They are based on primarily subjective valuations by appraisal review boards and determined tax rates by local tax entities with little to no feedback from citizens. Given the rising property tax burden and its inefficient collection mechanism, they should be eliminated in exchange for a more efficient, slower-growing sales tax based on objective market transactions that would help appropriately remove taxes on capital (i.e. property)—the driver of the wealth of states.

Property taxes are more regressive than a sales tax. Opponents of a sales tax say it is too regressive, whereby people with lower incomes people pay a larger share of their income to taxes than those with higher incomes. The Texas Comptroller’s recent report confirms that both sales taxes and property taxes are regressive, according to the “suits index” (see following two tables), but suggests property taxes are less regressive. However, this analysis (and others like it) do not account for the fact that sales taxes are paid once at purchase yet property taxes are paid annually, hurting low- and fixed-income Texans the most because the costs compound over time. A property tax also keeps people from getting their first home and kicks many people out of their home and business. Appropriately accounting for these cumulative costs indicates a property tax is more regressive. 

​ Texas should ultimately have only a single-legged barstool in the form of a broad-based sales tax. Some talk about the need for a three-legged stool of taxation. These legs include a sales tax, property tax, and a personal income tax. Because Texas appropriately doesn’t have the latter, the argument is that there is a need for the other two. But that’s incorrect. Texas needs the most efficient tax system possible to fund limited government. That’s done by expanding the sales tax base as wide as possible to not pick winners and losers to keep the rate as low as possible.
 
There are paths to swapping out city and county property taxes with a higher local sales tax rate if the state doesn’t broaden the base. This is also a good option as it provides a direct funding source for local governments’ maintenance and operations if, and only if, they eliminate the property tax with a revenue neutral swap. Ideally, the sales tax rate would not be allowed to ratchet up further after the swap and the property tax could never come back.
 
The school district maintenance and operations property tax, which comprises about 45 percent of the total property tax burden in Texas, could also be swapped out with a sales tax. A broader sales tax base could allow the rate to fall. Here is an overview of possible rates and sales tax bases to eliminate the school district M&O property tax in Texas with 2017 data, which the ideal option would be to expand the base and not tax property, as property is capital that supports economic prosperity. 

Texas should limit spending to limit taxes. While sales tax collections can be more volatile than property tax collections from economic changes, sales taxes better reflects taxpayers’ ability to pay than a property tax that they have little control over. Also, property taxes often don’t reflect the economic climate but rather the whims of appraisal districts and local officials that hurt property holders in the process when their incomes are falling. More importantly though, Texas governments must practice spending restraint so that excessive spending doesn’t drive taxes higher than taxpayers’ ability to pay. High taxes are always and everywhere a spending problem.

In this Let People Prosper episode 58, let's discuss education-related issues in Texas of school finance reform, property tax relief, and the Teacher Retirement System (TRS) of Texas pension solvency.

To sum up, taxpayers have increased funding for public schools for years (see here and here) and now it's time for those elevated current dollars to be spent wisely to the classroom for improved education outcomes. School finance also includes property tax relief which should be accomplished by following the TPPF plan of actually lowering property taxes. And the latest TPPF-Reason Foundation paper highlights the mounting problems with the TRS pension that must be addressed soon before the pocketbooks of teachers and all taxpayers are hit. 

There's much on the line for education in Texas. Serious discussion about spending taxpayer dollars wisely, lowering property taxes, and assuring the TRS pension system is solvent through reform are essential elements of improving education in the Lone Star State. 

#LetPeopleProsper

In this Let People Prosper episode, let's discuss one of the things that's on most Texans' mind: property taxes.  I recently testified before the Texas Commission on Public School Finance's Revenue Workgroup on the problem and solutions to wretched property taxes in Texas. Here's my written testimony and you can watch my oral testimony at time 59:45 here. 

​
Texas’ property tax system has turned property owners into renters, where government is their landlord and Texans who struggle to pay annual tax bills face confiscation of their properties. Additionally, the growth of government is harming taxpayers and the economy through higher taxes and more regulation.

The goal must be to eliminate all property taxes as they violate property rights, destroy economic growth, and disproportionately hurt the poor while being subjectively determined as they support excessive local government spending. A good place to start down that road is by ending nearly half of the property tax burden in Texas through the elimination of the school maintenance and operations (M&O) property tax, which is supported by the 18 groups in the Conservative Texas Budget Coalition. This is relatively easier than other local tax jurisdiction because the state already determines the school finance formulas and has a way to distribute funds to school districts.

Let's discuss.

First, we must identify the problem.

From 1996 to 2016, total property taxes across the state have increased by 233% while the school portion of the property tax increased by 201%. Personal income has increased by 199%; however, the best metric of the average Texan's ability to pay taxes is measured by the compounded growth of population plus inflation for that period, which was only 123%.  This means that the total tax levy increased by 1.9 times more than pop+inf and the school district tax levy increased by 1.6 times more than the average Texan's ability to pay.

It's no wonder that many people are being forced out of their homes and businesses because of skyrocketing property taxes. This is a travesty what government is doing to people who are trying to leave a legacy for their kids and grandkids. 

This points to the disease of the symptom of high taxes: excessive government spending. Taxes (and deficits) are always and everywhere a spending problem. To gain control of skyrocketing taxes, we must first get control of the driver of the problem in excessive government spending.

This brings us to a solution: By limiting state and local government spending, Texas can use taxpayer dollars collected at the state level to eliminate the school maintenance and operations (M&O) property tax, which is nearly half of the property tax burden, very soon. While other options have been tried in the past, like raising the homestead exemption and swapping the property tax with a reformed franchise tax ("margins tax"), those didn't permanently reduce property taxes--making those attempts a failure in the eyes of most taxpayers. 

Fortunately, there are solutions.

One option is to permanently buy down the school M&O property tax with state surplus dollars until it is eliminated. Here's how:

• Consider similar language as in SB 66 (2018) whereby biennial growth of general revenue-related funds (GRR) above 4% biennially would go toward buying down the school M&O property tax rate each session.
• Have school districts set their tax rate each year to reduce property tax revenue by the amount of the state’s replacement funding until eliminated.
• Allow school districts to only exceed this rate with the approval of more than 50% of voters in an election with at least a 20% turnout, but excess revenue raised by the vote will be recaptured by the state.
• If the historical rate of GRR growth holds, Texas should be able to eliminate the school M&O property tax in 11 years (see Table below). If GRR growth is lower, then it will take longer.
• In addition, to slow the growth rate of the other local tax jurisdictions, increases in city, county, and special purpose district property tax revenue will be limited to 2.5% annually to keep local governments from raising taxes to fill the gap caused by lower school district taxes. The limit can be exceeded with the approval of 50% of voters in an election with at least a 20% turnout.
• This accomplishes the task of slowing state and local government spending while connecting spending less with actual tax relief with the eventual elimination of nearly half of the property tax burden in Texas.

Another option is to replace the school M&O property tax by broadening the sales tax base and limiting state and local government spending. Here's how that could work:

• Consider similar language in HB 285 (2017) that would eliminate the school M&O property tax by broadening the sales tax base so the tax rate works politically and economically.
• Goal should be to sufficiently broaden the base to fund elimination of the school M&O property tax without taxing the transfer of property or raising the tax rate much if at all.
  
• Given that since Adam Smith we have known that the wealth of nations is from the formation and accumulation of capital and that property is nothing more than capital, we should not tax property. This is particularly true if we don't eliminate all property taxes because we don't want a property tax levied by cities, counties, and special purpose districts and a transfer tax imposed by school districts to ratchet around over time.
• Broadening the base could sufficiently be done be eliminating many of the goods and services excluded from the sales tax base as noted here by the Texas Comptroller.
• This should also include a state spending limit as noted in SB 66 that says any GRR above 4% growth biennially would go to buying down the franchise tax or sales tax along with an automatic rollback election for other local tax jurisdictions of 2.5% annually. 
• This accomplishes the task of slowing state and local government spending while connecting spending less with actual tax relief with the eventual elimination of nearly half of the property tax burden in Texas.

The following Table shows different sales tax bases and rates starting with taxing everything in the private sector then subtracting multiple industries measured by the Bureau of Economic Analysis as to keep from resulting in a value added tax system. In other words, we could keep the same sales tax rate of 8.25% (state portion is 6.25% and local portion is a max of 2%) with a GDP base of around $750 billion, which is about half of the private sector economy and about 67% higher than the base today. 

Clearly there is no silver bullet. This will be a difficult hill to climb whichever option is chosen.

​Recently, two economists from Rice University estimated that if the buy down option or the swap option over time was chosen, the Texas economy could expand by about $12.5 billion above expected growth and private sector job creation could increase by 183,000 net jobs above expected growth soon after reform. 

The Texas Model is strong, but there's more that must be done. These options would provide a clear path to more prosperity and less of a burden of holding property until you can finally own it when property taxes are eliminated entirely. 

In this Let People Prosper episode, let's discuss how the recent election gives us insight on how we need more civil discourse to find ways to strengthen institutions so people can flourish. 

My recent paper on how institutions matter provides a good overview of what I discuss in this episode along with economic data to support the theory. Here is a graphic that explains rather well the ecology of human development. 

The data provide overwhelming evidence that the Texas Model of inclusive institutions with a relatively low tax-and-spend burden, no individual income tax, and sensible regulation provides an institutional framework supporting more job growth, higher wages, lower income inequality, and less poverty than in comparable states and the U.S., in most cases. Texas is doing something right. Other states and D.C. would be wise to consider adopting Texas’ inclusive economic and political institutions that champion individual liberty, free enterprise, and personal responsibility.

This is a path to providing an economic environment that allows entrepreneurs the greatest opportunity to thrive and for prosperity to be generated for the greatest number of people. Despite this success, improvements are needed to keep the Texas Model competitive and create even more opportunities for all to flourish. These improvements to Texas’ institutional framework include:

• limiting the growth in government spending,
• eliminating the state’s onerous business franchise tax,
• reducing barriers to international trade,
• reducing the escalating burden of property taxes, and
• relieving Texans from burdensome occupational licenses.

​Even with these improvements, the data overwhelmingly show it was not a miracle in Texas, but rather abundant prosperity generated by Texans from a proven institutional framework called the Texas Model. ​

By strengthening institutions to let people prosper, we can also engage in more civil discourse so that we have many opportunities to work together. 

​Texans appreciate living in a state that values liberty, sensible business policy, and, perhaps most importantly, a strong dislike for taxes, which inevitably infringe on the first two values.
But, in comparison with other states, Texas is beginning to lose its competitive edge in business climate as noted in the Tax Foundation’s recently released 2019 State Business Tax Climate Index.

The report ranks all fifty states based on the burdens of each state’s corporate income tax, individual income tax, sales tax, unemployment insurance, and property tax.
Figure 1 presents the ranking of each state whereby the top-ranked states include either states without at least one major tax, such as the individual income tax, or states that have all major taxes with low rates and broad bases.

Meanwhile, poorly ranked states share similar shortcomings such as complex non-neutral taxes and comparatively high tax rates, such as in the three worst ranked states: California (48th), New York (49th), and New Jersey (50th).

In this year’s report, Texas’ overall rank took a hit, sliding from 13th best nationwide in 2018 to 15th best for 2019. Yet, the drop is not due to new policy as the state’s individual category scores remained unchanged and actually improved by 8 ranks for Unemployment Insurance. Rather, the new lower overall rank highlights Texas’ stagnation in decreasing its tax burden as other states jump on the opportunity to increase their prosperity from lower burdens.

While Texas excels in the category of individual income tax because as it doesn’t have one, the state is consistently held back by its corporate income tax portion of the index, which remains unchanged at 49th, or second worst! 

This is because Texas’ business tax is a gross receipts-style tax that is costly to comply with and pay. If Texas eliminated this onerous tax, the Tax Foundation has found the state’s business tax climate overall rank could improve to 3rd best. And the Texas Public Policy Foundation and the Legislative Budget Board (LBB) have estimated large economic gains.

Texans have been hurt by burdensome local property taxes for too long, with that ranking in the report being 14th worst in the last three years. We know all too well about complexity, high rates, and lack of voter oversight of Texas’ local property tax system.

To overcome this over-burdensome system, the Foundation has recently released a report detailing a strategy to slow the growth of state and local government spending in order to use surplus state funds to permanently reduce the school maintenance and operations (M&O) property tax until its eliminated. This would end nearly half of the property tax burden in Texas within about a decade while increasing funding for school districts over time with state taxes that would eventually fund 100 percent of schools M&O.

Moving forward, Texas’ elected officials should consider these rankings by the Tax Foundation and other reports when looking for ways to improve the state’s business tax climate so Texans have the best chance to start a new business or gain employment.

The Texas model of limited government has contributed to human flourishing, where 24 percent of new civilian jobs created nationwide have been since December 2007, but there’s always room for improvement.

​https://www.texaspolicy.com/blog/detail/texas-business-tax-climate-needs-improving

​Texas’ property tax system has turned property holders into renters, where government is their landlord and Texans who struggle to pay annual tax bills face confiscation of their properties. Additionally, the growth of government is harming taxpayers and the economy through higher taxes and more regulation.

For example, Eddie Wilson owns the landmark Austin restaurant Threadgill’sbut recently announced he must close a location soon noting that he is “Flummoxed and bludgeoned by property tax increases, the grim truth is that we can’t afford it on the slim margins you make on meatloaf and chicken-fried steak.”

Substantial, permanent property tax relief is needed.

The Foundation’s recent report provides a plan of limiting government spending to eventually abolish property taxes in Texas by starting with eliminating the school maintenance and operations (M&O) property tax—nearly half of the property tax burden in Texas.

The school M&O property tax is a good place to start because the level of student funding is determined by state funding formulas that are first funded by local property taxes and then by state dollars. Although there’s a lot of noise about whether local governments or the state legislature is at fault for a skyrocketing local property tax burden, the truth is excessive spending is the problem and taxpayers foot the bill regardless (see figure below). The relative ease of this process is lost with other local tax jurisdictions.

Our plan is simple: State and local governments would limit spending such that state revenue permanently replaces the school M&O property tax within about 11 years. In other words, every dollar not spent by the state or school districts will produce a 90-cent property tax cut for Texans until half of the property tax in Texas is eliminated.

Here are the plan’s details:

• Limit local spending:
  • Increases in city, county, and special purpose district property tax revenues will be limited to 2.5 percent per year. The limit can be exceeded with the approval of 50 percent of voters in an election with at least a 20 percent turnout.
• Limit state spending:
  • Future general revenue-related (GRR) revenue increases will be limited to 4 percent per biennium, which covers population growth and some inflation but less than the Conservative Texas Budget to provide funding for property tax relief.
• State dollars replace school M&O property tax revenues:
  • School M&O property taxes, estimated to be $24.77 billion in 2018 ($51.3 billion in 2018-19), make up about one-half of the heavy property tax burden Texans face.
  • Historical state GRR growth has averaged 10.08 percent in the two-year budget cycles (biennia) since 2004-05. 
  • Ninety percent of the 6.08 percentage-point surplus between future GRR growth (10.08 percent) and the spending growth limit (4 percent) will be used to eliminate school property taxes, with the state increasing state education funding each year to gradually replace M&O of each local school district’s property tax revenue.
  • The additional 10 percent of the surplus would remain in GRR to cover potential revenue volatility.
  • School districts will set their tax rate each year to reduce property tax revenue by the amount of the state’s replacement funding. Districts can only exceed this rate with the approval of more than 50 percent of voters in an election with at least a 20 percent turnout. Excess revenue raised by the vote will be recaptured by the state.
• Result: If the historical rate of GRR growth and the spending limits hold, Texas should be able to eliminate the school M&O property tax in 11 years. If GRR growth is lower, then it will take longer, or vice-versa. Regardless, the state would eventually fund 100 percent of school M&O statewide and shift toward a more prosperity-supporting sales tax system.

Table 3 shows how the plan could work mathematically given the above criteria:

Under this plan, Texans will experience substantially lower property tax bills immediately and slower growth in them over time along with the broader economic benefits of slower government spending and a lower tax burden. Other options, such as sufficiently broadening the sales tax base, that begin with spending restraint to replace the school M&O property tax may be considered to deal with this problem.   

​Limiting government spending and using state dollars to replace nearly half of the property tax burden that funds education would shift Texas toward a more efficient sales tax system to let people prosper.

https://www.texaspolicy.com/blog/detail/property-tax-relief-in-texas-plan-to-eliminate-school-mo-property-tax

We previously discussed the problems with Texas’ skyrocketing property tax burden. Let’s now consider past failed property tax relief attempts signaling a need for options that will provide permanent relief.

Since Texas’ modern property tax system took shape in 1979 with the passage of the “Peveto bill,” there have been three major attempts by the Texas Legislature to provide relief for taxpayers. Unfortunately, none of the attempted solutions created lasting reductions in property taxes as the attempts failed to address increased spending—the cause of increasing taxes—and instead simply shifted around the burden.

1997 Reform Attempt: Homestead Exemption Increase by $10,000
The 75th Texas Legislature attempted to reduce the rising property tax in 1997 by increasing the homestead exemption for school district property taxes by $10,000. Instead of allowing only $5,000 to be deducted from the taxable value of an individual’s property, the taxpayer could now deduct up to $15,000. The increased exemption was accompanied with homeowners who were 65 and over receiving a freeze on their school district property taxes. The total tax relief package was estimated at $1 billion. However, it resulted in little to no effect as school district property taxes increased by nearly $1 billion and total property taxes increased $1.4 billion the year after implementation and continued rising thereafter.

2006 Reform Attempt: Property Tax-Franchise Tax Swap
After the Texas Supreme Court determined the school finance system was unconstitutional in 2005 from an essentially statewide property tax, the Legislature in a 2006 special session aimed to bring property tax relief. The solution was a reformed business franchise tax to what’s known as the margins tax today and increase the motor vehicle sales tax and tobacco tax while also changing the school finance formulas. While the outcome was an initial reduction in school district and total property taxes, the declines were marginal the first year with taxes being substantially higher than 2006 in 2008. As a result, instead of sustained property tax reduction, Texans experienced an increase in both local property taxes and state taxes. Moreover, the swap exchanged an already poor property tax system with an arguably worse margins tax that should be eliminated.

2015 Reform Attempt: Homestead Exemption Increase by $10,000
Similar to the 1997 reform, the 84th Texas Legislature looked to raise the homestead exemption for school districts property taxes another $10,000 to $25,000. Again, lower local property tax collections were replaced with state funds so as to not decrease school district budgets. Yet, much like 1997, there was no improvement in the tax burden as school property taxes increased by $1.7 billion and all property taxes increased by almost $4 billion the next year.

​Conclusion
With past property tax relief failures of increasing the homestead exemption and the franchise tax swap, the time has come for a strategy that employs reducing the growth of government spending at the state and local levels while using state dollars to eliminate property taxes.  

​Despite the economic success of the Texas Model of relatively fiscally conservative governance, a skyrocketing local property tax burden remains one of the state’s most pressing policy challenges.

While Texans have the luxury of not paying a state personal income tax, which should be constitutionally banned, they’re currently weighed down by more than 5,100 local taxing jurisdictions that boast the sixth highestproperty tax rate nationwide. These locally-determined tax rates along with often subjectively appraised property values combine to give the total property tax levy statewide of $56 billion in 2016—contributing to an average property tax burden of more than $8,000 per year for families of four.

Although many Texans live in uncertainty year-to-year on what their property tax bill will be, much of the damage of such ominous tax burdens are not so uncertain: discouraged economic growth, distorted investment decisions, depressed job creation, and ultimately renting property from the government forever.

While the pain is felt statewide, it’s particularly felt among housing-rich but income-poor individuals, such as the elderly, who often must move as increasing tax liabilities extend beyond their means. In fact, some Texans who have paid off their mortgage now pay more for their property tax liability than prior mortgage payments, forcing them out of their home. The high property tax burden also keeps some people from ever having the means with which to purchase property.

Both of these issues limit the liberty and economic prosperity of Texans from property taxes at often no fault of their own. This is particularly harmful because people aren’t able to ever own their home but rather pay rent to the government forever.

And even those who do not have property are burdened as renters can reasonably expect property managers to pass the tax along to them and consumers pay more goods and services as business owners do the same.

The culmination of these increases by local tax jurisdictions contribute to the total property tax levy statewide increasing by 233 percent to $56 billion in property taxes collected in 2016—the single largest tax imposed in the Lone Star State. For comparison, there may be a need for increasing spending and therefore taxes to fund increases in population and inflation.

However, in this period, the state’s population growth increased by 47 percent and price inflation increased by 53 percent—collectively well below the increase in property taxes.

On an average annual basis, the total property tax levy increased by 6.3 percent during that period; however, population growth increased by 1.9 percent and price inflation increased by 2.2 percent. Again, these growth rates indicate the mounting burden on Texans compared with a potentially reasonable argument for spending and taxing more. 

With many local tax jurisdictions raising property taxes at rates that are outpacing key measures of Texans’ ability to pay, the Texas Legislature has attempted to limit the growth of property taxes but to little avail. The steady increase in the property tax burden despite these unsuccessful attempts signal the real issue: Texas’ local governments don’t have a revenue problem, they have a spending problem.

​By first identifying this spending problem, we can begin to discuss real property tax relief.