The Tax Foundation recently published a map of the country illustrating the property taxes paid in each state as a percentage of owner-occupied housing value in 2018. Of all 50 states, Texas had the seventh highest property tax burden in the country, with an effective rate of 1.69% of occupied housing value. This burden is something that Texans across the state know too well.
The article accompanying the map acknowledges that Texas to some extent relies on high property taxes in lieu of other tax categories – i.e., income taxes – though other states without an income tax do not necessarily have a high property tax burden (e.g., Florida). Regardless, in an economy hampered by COVID-19 and government lockdowns and with homeowners under substantial financial and mental stress, local governments have a responsibility to reduce the burden on taxpayers.
The Texas Public Policy Foundation has put forward proposals to reduce burdensome property taxes by focusing on Texas embracing final sales taxes over property taxes and governments implementing sound budget practices.
A final sales tax system is a more attractive alternative to a property tax. Property taxes are calculated on oftentimes subjective property values, which can rise without a change in homeowners’ ability to pay; Texans can adjust their spending habits to a sales tax, however. This results in a compounding effect of property taxes on holders of property every year that reduces their ability to pay them, forcing many to lose their property and to never truly own it.
One way to ease the property tax burden across Texas is to buy down school districts’ maintenance and operations (M&O) property taxes, which is about half of the property tax burden. This could be done by limiting state spending and using any surplus funds to cut the local property tax until it is eliminated, which could take roughly a decade, moving Texas towards sales taxes as they are the state’s top revenue source. However, this could be difficult to maintain session after session with the limitations on state and local government spending to achieve this in a timely manner, if at all.
Another way is for the state to immediately replace school M&O property taxes with higher sales taxes. An immediate swap would eliminate the risk that the switch to a final sales tax would be only temporary, a failure common to past property tax relief efforts. However, an immediate switch may be politically challenging to implement, so a way to mitigate this is to limit state spending and use surplus funds to cut the sales tax rate over time.
Switching M&O costs to sales taxes is not the only measure local (or state) governments should adopt. The other, and possibly even more fundamental to reducing barriers for opportunities to let people prosper, is implementing sound budgetary practices.
By reducing government spending through things like freezing new hires and pay raises and placing a moratorium on incurring any new taxpayer-funded debt, there are plenty of opportunities to cut taxes.
Local governments should volunteer for third-party audits to determine where areas of waste can be eliminated along with expensive lobbying contracts and longevity pay. Ultimately, practicing zero-based-budgeting, whereby local governments must justify every expenditure, could help achieve setting budget priorities that support effective government programs.
Any government approach to supporting an economic recovery in the wake of COVID-19 must begin with easing the burden on Texas taxpayers, and that approach must include reducing the burden of soaring property taxes and implementing sound budgeting at all levels of government.
I provide options for how to substantially reduce the high property tax burden in Texas by limiting government spending with either a buydown of property taxes over time or a swap with sales taxes immediately so that Texans have more opportunities to prosper.
Lawmaker: At least 38 local government in Texas have attempted to raise property taxes above state cap
(The Center Square) – Several Texas counties have chosen to not raise county property taxes this year, keeping rates the same or lowering them in some cases. But 38 taxing entities have tried to increase property taxes over the state-mandated cap requiring taxpayer approval, state Sen. Paul Bettencourt said.
At a Texas Public Policy Foundation (TPPF) panel discussion last week, the Houston-area senator who serves as the Senate Property Tax Committee Chair said 16 counties and 23 cities attempted to increase taxes over the limit set by the legislature.
Austin was among them. The Austin City Council recently voted to increase taxes above the limit enacted by the legislature last year, and voters will either approve or reject it this November. Several cities rejected increases in property taxes, including Dallas and Longview.
For the fifth year in a row, Collin County announced it was lowering its property tax rate in order to keep homeowners’ bills roughly unchanged from the previous year. In the past decade, the county has adopted no increased revenue rates nine times.
Previously referred to as the effective rate, the no-new-revenue rate collects the same total amount of property tax revenue as it did the previous year. However, what homeowners owe might go up depending on their property’s value increasing. A static or lower rate on a higher value still results in a higher tax bill for some.
In Denton County, the new tax rate is below the current tax rate and the no-new-revenue tax rate. Plano County’s budget is based on a “no-new-revenue” property tax rate.
Tarrant County also kept its property tax rate the same, which is slightly below the no-new-revenue rate. But because of rising home values, the average property tax bill will increase by roughly $9.
“The problem with Texas property taxes has always been as property values go up, tax rates never came down," Bettencourt said. "So values inched up and in some cases increased by 10 percent each year and were never offset by taxes going down.”
Bettencourt helped pave the way for property tax reform in the last legislative session. SB2 reduced cap on potential property tax increases for the first time in 30 years, from 8 percent to 3.5 percent. HB3 placed a hard cap of 2.5 percent for school districts. Both were combined in the property tax bill signed by Gov. Greg Abbott.
Any attempt to increase taxes over the caps requires approval by voters.
Dr. Vance Ginn, chief economist at TPPF, said that the rollback rate was established in 1979. In 1981, it was raised from 5 percent to 8 percent when inflation was running double digits. But over the past 25 years, inflation hasn’t been above 4 percent.
In 2019, it was time to adjust the rates, Ginn said, to protect homeowners from ongoing increased taxation. It couldn’t have been more timely, he said, since within less than a year more than 4 million Texans filed for unemployment during COVID-19 restrictions and state and local governments were seeing less revenue.
It’s problematic that local governments “need to expand their budgets in some capacity by more than 3.5 percent,” Ginn said, “when Texas families are often times seeing their incomes fall dramatically from having some sort of income down to zero, [… receiving unemployment], and some of these local taxing entities are saying, ‘You know what, we need to raise our taxes more. By the way, the way we are going to do that is spending more along the way.’”
In Harris County, property taxes increased by 29 percent from 2014 to 2018, whereas population growth and inflation increased by 11 percent, Ginn said. The comparison between taxes and population growth and inflation is often used as a metric to determine how much the burden of government should grow to stay within the means of taxpayers, he said.
According to a recent WalletHub study, Texas ranked 32nd highest among 50 states for its overall tax burden of 8.2 percent. Texas property owners paid 3.95 percent in property taxes and 4.25 percent in sales and excise taxes.
It took a decade to get tax relief on both sides, Bettencourt said, adding that, “The pressure to spend more taxpayer money is ingrained in government.”
In this Let People Prosper episode, we discuss how we got to where we are today in our careers, which are driven by the desire to improve the well-being of people today and future generations. I'm thankful for their friendship and excellent work!
We discuss the need to rein in government spending so we can have the least burdensome tax system. Here's a write-up on what's going on with taxes and spending in Texas.
This conversation goes on a little longer than normal, but it's one that you don't want to miss a moment!
Thank you for watching and sharing it with your family and friends.
In this Let People Prosper show, we discuss the push by locally elected officials for total control of our lives instead of allowing control by local voters. We also discuss the reasoning for every dollar raised by increasing the state's sales tax rate to go to property tax relief of lower tax bills instead of growing government by just reducing recapture which stays with school districts and doesn't go to cutting your tax bills. That discussion included the House Ways & Means hearings of HJR 3 last week and SB 2 this week. Finally, we discussed major reforms to bail and ban the box that could improve the criminal justice system and help those that are involved. These are the ways we can help Texans and all Americans have more opportunities to prosper.
Please watch the full episode and share with your network. Thanks!
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.
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.
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.
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.
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.
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).
In this Let People Prosper episode, James Quintero, Dr. Derek Cohen, and I discuss the following:
Amazon Favoritism Problem, TX Property Tax Update, & Committee Org Meetings: Let People Prosper Ep 74
In this Let People Prosper episode, James Quintero, Derek Cohen, and I discuss key topics this week for Current Events Friday.
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.
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.
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).
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.
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!
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.
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.
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:
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.
This is why there is need to limit spending growth to no more than population growth and inflation, two key measures that reflect the ability to pay from more people and wage growth that’s highly correlated with inflation. By practicing spending restraint, excess taxpayer dollars can be used to lower the sales tax rate after a swap or could even be used to cut the school M&O property tax in the meantime until the elimination of school districts’ maintenance and operations property taxes.
By practicing fiscal restraint and eliminating all taxes in Texas except for a broad-based sales tax, the Texas Model would support even greater prosperity for all Texans.
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.
Eliminating Property Taxes in Texas Starts With Limiting Government Spending: Let People Prosper Episode 53
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.
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:
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:
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.
Vance Ginn, Ph.D.