Government Spending Is The Problem
The late, great economist Milton Friedman said, " The real problem is government spending."
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This is true as spending comes before taxes or regulations. In fact, if people didn't form a government or politicians didn’t create new programs, then there would be no need for government spending and no need for taxes. And if there was no government spending nor taxes to fund spending then there would be no one to create or enforce regulations.

​While this might sound like a utopian paradise, there are essential limited roles for government outlined in constitutions and laws. Of course, most governments are doing much more than providing limited roles which preserve life, liberty, and the pursuit of happiness. This is why I have long been working diligently to get a strong fiscal rule of a spending limit enacted in all states and at the federal level promptly under my calling to "let people prosper," as effectively limiting government supports more liberty and therefore more opportunities to flourish.

Fortunately, there have been multiple state think tanks that have championed this sound budgeting approach through what they've called either the Responsible, Conservative, or Sustainable State Budget.

When Did It Begin?
I started this approach a decade ago with my colleagues at the Texas Public Policy Foundation with work on the Conservative Texas Budget which began in 2013. The approach is a fiscal rule based on an appropriations limit that covers as much of the budget as possible, ideally the entire budget, with a maximum based on the rate of population growth plus inflation and a supermajority (two-thirds) vote to exceed it. A version of this approach was started in Colorado with their taxpayer's bill of rights (TABOR), which was championed by key folks like Dr. Barry Poulson and others.  (picture below is from a road sign in Texas)

Why Population Growth Plus Inflation?
​While there are other measures to use for the growth limit, this metric provides the best reasonable measure of the average taxpayer's ability to pay for government spending without excessively crowding out their productive activities. It is important to look at it from the taxpayer’s perspective rather than the appropriator’s view given taxpayers fund every dollar that appropriators redistribute from the private sector. Population growth plus inflation is also a stable metric reducing uncertainty for taxpayers (and appropriators) and essentially freezes inflation-adjusted per capita government spending over time.

​The research in this space is clear that the best fiscal rule is a spending limit using the rate of population growth plus inflation, not gross state product, personal income, or other growth rates. Given the high inflation rate more recently, it is wise to use the average growth rate of population growth plus inflation over a number of years to smooth out the increased volatility. And this rate should be a ceiling and not a target as governments should be appropriating less than this limit, ideally freezing or cutting government spending at all levels of government to provide more room for tax relief, less regulation, and more money in taxpayers' pockets.

Overview of Conservative Texas Budget Approach
Figure 1 shows how the growth in Texas’ biennial budget was cut by one-fourth after the creation of the Conservative Texas Budget in 2014 that first influenced the 2015 Legislature when crafting the 2016-17 budget along with changes in the state’s governor and lieutenant governor. And the 8.9% average growth rate of appropriations since then was been below the 9.5% biennial average rate of population growth plus inflation over the latter period, which this was drive substantially higher after the latest 2024-25 budget that is well above this key metric (before this biennial budget the growth rate was 5.2% compared with 9.4% in the rate of population growth plus inflation). 

​And this approach was mostly put into state law in Texas in 2021 with Senate Bill 1336, as the state already has a spending limit in the constitution. The bill improved the limit to cover all general revenue ("consolidated general revenue"), base the growth limit on the rate of population growth and inflation, and raise the vote to three-fifths of both chambers to exceed it. There are improvements that could be made to SB 1336, such as adding it to the constitution and improving the growth rate to population growth plus inflation instead of population growth times inflation calculated by (1+pop)*(1+inf). But this stronger limit is likely the strongest in the nation as historically the gold standard for a spending limit of the Colorado's Taxpayer Bill of Rights (TABOR) has been watered down over the years. 

My Work On The Federal Budget In The White House
From June 2019 to May 2020, I took a hiatus from state policy work to serve my country as the associate director for economic policy at the White House's Office of Management and Budget. There I learned much about the federal budget, the appropriations process, and the economic assumptions which are used to provide the upcoming 10-year budget projections. In the President's FY 2021 budget, we found $4.6 trillion in fiscal savings and I was able to include the need for a fiscal rule which rarely happens.

Work With Other States
When I returned to the Texas Public Policy Foundation in May 2020, as I wanted to get back to a place with some sense of freedom during the COVID-19 pandemic and to be closer to family, I started an effort to work on this sound budgeting approach with other state think tanks. This contributed to me working with many fantastic people who are trying to restrain government spending in their states and the federal levels.

​My hope is that if we can get enough state think tanks to promote this budgeting approach, get this approach put into the state's constitution and statute, and use it to limit local government spending as well, there will be plenty of momentum to provide sustainable, substantial tax relief and eventually impose a fiscal rule of a spending limit on the federal budget.

This is an uphill battle but I believe it is necessary to preserve liberty and provide more opportunities to let people prosper.

Responsible State Budget Efforts Across The Country
Here are the states (in alphabetical order) and state think tanks which I'm working with in some capacity or will be soon along with information on how this process is going in that state, which I will update periodically, with the successful versus not successful budgeting attempts being 17-5.

1. Americans for Tax Reform will soon release a map with every state's Responsible Budget based on this approach.
2. Alaska: Alaska Policy Forum released its third Responsible Alaska Budget, with the first two unsuccessful but the most recent being successful as it helped define the narrative about sound budgeting.
3. Colorado: Independence Institute will release its first Sustainable Colorado Budget soon.
4. Florida: James Madison Institute recently released its first Conservative Florida Budget, still waiting on results.
5. Iowa: Iowans for Tax Relief Foundation released its third Conservative Iowa Budget, and the first three have been mostly successful.
6. Kansas: Kansas Policy Institute released its second Responsible Kansas Budget, with the first two not being successful but improvements are being made to help rein in even more spending.
7. Louisiana: Pelican Institute recently released its first Responsible Louisiana Budget, with the first being unsuccessful.
8. Michigan: Mackinac Center released its second Sustainable Michigan Budget, with the first not being successful but the second one being successful in reining in excessive spending in a tough political situation.
9. Mississippi: Mississippi Center for Public Policy recently released its first Responsible Mississippi Budget and was successful.
10. Montana: Frontier Institute released one Conservative Montana Budget and one report on Responsible Local budgets, which has resulted in two successful CMBs and improved local budgets.
11. South Carolina: South Carolina Policy Council released its first South Carolina Conservative Budget and was successful.
12. Tennessee: Beacon Center released its second Conservative Tennessee Budget, with the first two being successful.
13. Texas: Texas Public Policy Foundation released its fifth Conservative Texas Budget, with the first four of five (2024-25 budget wasn't) being mostly successful, and the recent release of Responsible Local Budgets.
14. Federal: The Responsible American Budget to rein in federal government spending to support fiscal sanity in D.C., which is essential for the future of our country.

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If you're interested in doing this in your state, please reach out to me.

P.S. Good write-up on this issue here by Dan Mitchell at International Liberty.​

​Texas is a leader in job creation over the last year and since February 2020. But Texas faces major headwinds as the recently ended 88th Legislature looked more like California than what is expected from the free-market bastion of hope and prosperity in Texas.

• This included the largest spending increase, largest corporate welfare, and subsequent second-largest property tax cut in the state’s history.
• Texas should pass universal education savings accounts this year during what will likely be the third special session called by Gov. Greg Abbott (R) in October 2023.
• Texans should expect more from the largest red state in the country.

 
The best path to let people prosper is free-market capitalism as it is the best economic institution that supports jobs and entrepreneurship for more people to earn a living, gain skills, and build social capital.
 
Table 1 shows Texas’ labor market for July 2023 from the U.S. Bureau of Labor Statistics.

​The labor market continues to improve in Texas even as there are some weaknesses remaining.

• The payroll survey shows net nonfarm jobs in Texas increased by 26,300 last month, resulting in increases for 38 of the last 39 months, to bring record-high employment to 13.97 million. Texas has set a new record high in total nonfarm employment for 22 straight months.
• Compared with a year ago, total employment was up by 441,700 (+3.3%)—the second fastest growth rate in the country—with the private sector adding 392,300 jobs (+3.4%) to 11.92 million and the government adding 49,400 jobs (+2.5%) to 2.05 million.
• Figure 1 shows that inflation-adjusted average weekly earnings are increasing in most industries in Texas with inflation still running hot at least at 3.2%.

• ​The household survey shows that the labor force participation rate is higher and the employment-population rate matches those in February 2020, but the former is well below December 2007 at the start of the Great Recession.
• The state’s unemployment rate of 4.1% is higher than the U.S. rate of 3.5% but this is a weak indicator as it’s highly volatile based on changes in the labor force.
• Shortages in the labor market are across the economy as many still sit on the sidelines from profligate safety nets primarily from the federal government over the last three years.

 
The economy continues to expand in Texas though there are headwinds.

• The U.S. Bureau of Economic Analysis (BEA) reported the real gross domestic product (GDP) by state for 2022.
• Figure 2 shows Texas had the fifteenth fastest real GDP growth of +3.0% to $1.94 trillion (above the U.S. average of +2.0% to $20.28 trillion). 

• While Texas does relatively well, there is much more to do for more liberty and prosperity.

The Texas Legislature should improve the Texas Model by:

• Passing pro-growth policies that:
  • Spend Less: Lower state government spending and pass responsible local spending limits.
  • Tax Less: Start eliminating local property taxes with historic surpluses at the state level to buy down school district M&O property taxes and at the local level by using their own surpluses to buy down their own property tax rates.
  • Regulate Less: Improve workforce development, remove barriers to work, reduce occupational licensing, reform safety nets, and enact school choice.

 
Strengthening the Texas Model will help Texans better resist D.C.’s overreach and flourish more for generations to come.

​It’s an exciting time as millions of students return to schools in Texas this month. The bright young minds are ready to take the next step in their unique paths for a prosperous future.

But what’s depressing is that few students in Texas will attend the best school for them. This is because Texas – the largest red state – has yet to adopt universal school choice.

Why the delay? Mostly misinformation.

School choice is “any policy that allows families to take their children’s education dollars to the approved education provider of their choosing – be it traditional public schools, public charter schools, private schools, virtual learning, or homeschooling.”

The gold standard of school choice is Education Savings Accounts (ESAs). Universal or near-universal ESAs have been adopted by eight states so far: Arkansas, Arizona, Florida, Indiana, Montana, South Carolina, Utah, and West Virginia. Other states have passed limited school choice.

With ESAs, all parents receive an allotted amount for each child that they can use however they wish for approved education-related expenditures. Some parents choose to send their child to their local public school district and use the money for school supplies. Others put it toward private school tuition, and others toward homeschool curriculum and tutoring.

The possibilities of using ESAs are extensive to best meet the unique needs of students.

But Texas trails behind in school choice because voters living in rural areas fear “that any kind of educational competition will decimate rural public schools and drain them of funds.”

This circular concern proves the point that school choice advocates have been making for years: if a school, be it public, private, or charter, fails due to the existence of ESAs, then that school lacks the competition required to keep and attract parents.

And herein lies misinformation.

A recent article from the Dallas Morning News on this subject claimed, “Did you know parents can take their children to any school they desire? If a parent wants their child to attend a charter, private or public school, the parent has the power to choose.”

If only that were true.

But when the average private school tuition in Texas is over $10,000, and the charter school waitlist is over 70,000, asserting that “parents can take their kids to any school they desire” misunderstands how unattainable alternative schooling options are for many children, especially those in lower-income or single-parent households.

I grew up in a lower-income, single mother household in South Houston, Texas, so this limitation hits home.

Fortunately, I had the opportunity to go to a small private school from kindergarten to second grade because my mother worked there. I attended a government school from third grade to sixth grade. Then my grandparents and father helped my mother fund my home schooling from seventh grade to twelfth grade. I then went on to be a first generation graduate with a doctorate in economics from Texas Tech University.

Unfortunately, too many don’t have those same opportunities that I was blessed to have. This must change.

While ESAs do not remove every barrier, as schools have limited seats and some areas may only have government schools. But they substantially widen the array of options by helping alleviate some of the financial burden by putting tax dollars where they belong: funding students instead of systems.

The states that have adopted universal school choice with ESAs are allowing a more competitive market to work in education, and it will be exciting to see how competition fuels improvements in educational outcomes. Not only are parents in these states more equipped to send their children to the best schooling options for them, but teachers are also empowered with more options for where to take their professional services that best meet their needs.

Are government schools the best option in Texas? Implement universal school choice, and the answer will become apparent. Otherwise, the Lone Star State will lag behind more forward-thinking states that value educational freedom and student achievement.

There is a high likelihood that school choice will be part of a called special session by Texas Gov. Greg Abbott (R) in October. Let’s hope so because the longer Texas waits, the further students will fall behind.

Originally published at The Center Square.

​Texas Governor Greg Abbott (R) recently signed into law the tax relief compromise by the Legislature’s second special session. This relief is historic with the country’s largest tax cut and the largest net tax cut in Texas history. 

But it falls short of what Texans were promised of the largest property tax cut in the state’s history, as it’s instead the state’s second largest property tax cut because of the largest spending increase in Texas history.

​Rather than providing substantial relief and simplifying the property tax system, the package presents a burdensome approach that could hinder the state's progress. By overspending and adopting a convoluted tax relief strategy, Texas risks falling behind states rather than leading the way in addressing real property tax concerns.

The deal provides $12.7 billion in new property tax relief out of the nearly $33 billion surplus as the Legislature increased the upcoming 2024-25 biennial budget by more than 30% in state funds. This is the largest increase in Texas history and well above the the key rate of population growth plus inflation of 16% over the last two years. 

The major target for property tax relief was reducing school district maintenance and operations (M&O) property taxes.

These property taxes are essentially a statewide property tax, which is prohibited by the state’s constitution, as they are partially determined by the state’s school finance system that includes redistribution of property taxes from school districts with high-valued property to districts with lower-valued property.   

Of the nearly $33 billion in state surplus funds and tens of billions more in new revenue available, the state allocated just $7.1 billion for a modest 10.7-cent reduction per $100 valuation in those property tax rates, called “compression,” which provides long-lasting relief and benefits everyone. 

The other $5.6 billion is for raising the homestead exemption by $60,000 to $100,000 for the appraised value of primary residences to determine how much is paid for school district property taxes. But this will be short-lived as valuations rise quickly and has failed to provide long-lasting relief the last three times it’s been tried in Texas since 1997 while benefitting only only homeowners.

The $12.7 billion over the next two years will hardly alleviate the burden of property taxes on Texans and is a far cry from eliminating them altogether as Gov. Abbot initially set out to do. 

The package also includes a pilot project of an appraisal cap on non-homestead property at 20% per year for three years. This property doesn’t have a cap on it today so this will benefit some but will mean that local governments will just ratchet up property tax rates to bring in the tax revenue they desire to grow spending. There will also now be three elected officials added to county appraisal boards.

Texans are left with this compromise package that unnecessarily complicates the tax system and obstructs efforts to eliminate school M&O property taxes, enabling the government to pick winners and losers. In this case, renters would undoubtedly be among the losers, and they are nearly 40% of households across the state. 

A more robust approach is necessary soon to achieve significant, long-lasting property tax relief for Texans. 

The best path being discussed is to buy down school district M&O property tax rates with surplus funds starting with limiting government spending, which was lacking this session after years of an improving budget picture. Ways to improve this overall package would have been by institutionalizing the buy-down plan and imposing spending limits on local governments.

The final part of the package is $600 million to raise the exemption of gross receipts to pay franchise taxes from $1 million to $2.47 million, which is important but doesn’t help reduce property taxes and is less effective than cutting the franchise tax rates until they’re zero.

This brings the total amount of new tax relief to $13.3 billion. This amount is lower than the $14.2 billion that the Legislature provided to buy down school property taxes in 2008-09, which would be about $21 billion to have the same purchasing power today. And even if you include the state maintaining its property tax rate reduction in 2019 of $5.3 billion in this year’s budget for a total of about $18.6 billion, it would not equal $21 billion. 

But that 2008-09 relief was done by raising bad taxes of the franchise tax, sales tax on motor vehicles, and cigarette tax which this time no taxes are raised as the taxpayer funds come from surplus money. So, this 2023 tax relief package can be called the “largest net tax cut in Texas history” but not the “largest property tax cut,” and is the largest tax cut in the country.

But Texans could have had more relief if the state hadn’t spent so much. 

Eliminating school property taxes is a crucial next step for Texans to truly own their homes instead of renting from the government forever. And this will be achieved faster when politicians stop spending so much. So while this historic relief is much appreciated, there’s much more to do next session for Texans to stop renting and start owning.

Originally published at Real Clear Policy.

​(The Center Square) – The property tax relief package passed by the state Legislature is the second largest in Texas history, economist Vance Ginn, president of Austin-based Ginn Economic Consulting, says.

While at the Texas Public Policy Foundation, Ginn helped devise a plan to eliminate one of multiple property taxes homeowners pay: the school maintenance and operations (M&O) tax. Eliminating this tax over time was part of Gov. Greg Abbott’s call for the first and second special legislative sessions.

Ginn, who sat down with The Center Square to explain differing property tax relief approaches, was also integral to implementing federal tax reform efforts when he worked at the White House’s Office of Management and Budget under the Trump administration.

After the legislature passed an $18 billion property tax relief package Thursday, House Speaker Dade Phelan said it was “the largest cut in Texas history.” Lt. Gov. Dan Patrick said it was “the largest property tax relief package in Texas history, and likely the world.”

Abbott, when running for reelection for his third term, vowed to return half of the state’s record $33 billion surplus to taxpayers. On Wednesday, he said the package allocated “at least $13.5 billion from our historic budget surplus to provide substantial relief to property taxpayers across Texas.” With additional money from the budget, he said they were delivering “over $18 billion in property tax cuts.”

According to Ginn’s analysis, the package includes $12.7 billion in new relief and $5.3 billion from the earlier-approved state budget. Neither $13.5 billion nor $12.7 billion is half of the surplus, he points out.

The combined $18 billion in property tax cuts, Ginn also points out, isn’t the largest property tax cut in state history. That occurred under Gov. Rick Perry in the 2008-2009 legislative session when the legislature passed $14.2 billion in property tax relief, he said. In order to surpass that, adjusting for inflation, “for us to have the same purchasing power of those dollars back then it would need to be about $21 billion,” he said. “This isn't the largest tax cut in history. It's substantial, it's historic, probably the second most ever.”

But more problematic, he says, is the Republican-led legislature spent more money than ever before.

“This session was the largest spending increase in Texas history of more than 20%,” he said. “If you look at all funds, and more than 30% if you look at state funds, the state's portion is up by a massive 30%. More than $50 billion being spent; that’s more than ever before.

“If you spend too much, you can't provide as much in tax relief. That's just dollars coming from the taxpayers.”

The $33 billion surplus means the state over collected taxes, he added. “That should be returned to the taxpayer. And the best way to do that,” through property tax reduction, “is through compression.”

“The research that I've done on this in the past is that's the only way you can get to zero. If we really want to eliminate property taxes, which is what Governor Greg Abbott said he wants to do, you can't do it by raising the homestead exemption. You could raise the homestead exemption to $1 million, $2 million, $3 million but you're always going to have property values that are above that. So that can't get you to zero.”

“Appraisal caps don't do that either,” he said, because they just slow growth, referring to the House plan, which was included in the bill. “Appraisal caps don't reduce property taxes. The only way to get to $0 per a $100 valuation, meaning a 0% tax rate, is by compression, lowering property tax rates until they get to zero. If you want to talk about limiting the growth of property taxes or a small relief, then you can talk about appraisal caps or homestead exemptions. But if you want elimination, and actually reduce them over time, the only way, the gold standard, is compression.”

Ginn explained how compression works.

"Rght now, when people pay property taxes to the school districts, the districts are funded at a set amount. The amount [that taxpayers overpay] that goes over the set amount, known as recapture, spills over and goes to Austin. When we talk about compression, what we're saying is we're wanting to reduce the recapture amount by the state funding a reduction in school M&O property tax rates.

“You do this by using state dollars collected from taxpayers, mostly sales taxes, but also franchise taxes. The school districts still receive the same amount of money because state law requires them to be fully funded. The difference is how much [recapture money] goes to Austin or not.”

Compression going to zero would eliminate recapture altogether, he explains.

Recapture is one reason why “the school property tax is essentially a statewide property tax,” he said. While the M&O tax is “determined by the school finance formulas that are set by the Texas legislature, “It's local in name only. That's why the focus has been to eliminate it at the state level. Use record levels of sales taxes and surplus dollars to reduce, compress the school district property tax until it goes all the way to zero.”

Original post at Washington Examiner from The Center Square. 

An Overview

• Texans for Fiscal Responsibility proposed a three-step process to eliminate all property taxes over the next decade by simply limiting government spending at the state and local levels of government and returning surplus-collected taxpayer dollars to taxpayers.

• But the 88th Texas Legislature passed the largest budget increase in Texas history, reducing how much they had available for property tax relief.

• The likely passage of property tax relief this session is less than half of the $33 billion surplus and even more in general revenue that was available for tax relief. The relief complicates and reduces the opportunity for Texans to have the right to own their property by eliminating property taxes.

The good news is that state officials in Texas have been debating how to provide one of the largest tax cuts in the state’s history and were even talking about eliminating school maintenance and operations (M&O) property taxes. But that good news withered away in the second special session of the 88th Texas Legislature, as the amount looks to be only about $12.7 billion in new relief (an additional $5.3 billion to maintain past relief was passed in HB 1 budget) of the at least $33 billion surplus. And given that the largest property tax cut was $14.2 billion for 2008-09, the state would need to provide $21 billion in new relief this time for it to be the largest tax cut in Texas history, so Texans could have the same purchasing power of relief as they had then.

While there has been a lot of debate on how the state should provide property tax relief of school district maintenance and operations (M&O) property taxes, which comprise more than 40% of total property taxes collected by local governments across the state, the best way to provide the most relief to everyone is through compression. This is simply using state dollars—mostly through sales taxes—to buy down school district M&O property tax rates that the state mostly controls with its school finance formulas.
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Instead, the compromise between the House and Senate, which Governor Abbott looks poised to sign, is a watered-down approach that provides too little in relief—just $12.7 billion in new relief in SB 2 (88(2))—because they chose to spend too much. And there is too little in compression with just $7 billion for 10.7 cents per $100 valuation in reduction for school M&O property taxes. The rest is a combination of raising the homestead exemption for school districts by $60,000 to $100,000, limiting non-homestead appraisal growth to 20% for three years, and requiring three directors on appraisal district boards to be elected with counties that have a population of 75,000 or more. The next part of the package is SB 3 (88(2)), raising the franchise tax exemption for gross revenue to $2.45 million from $1 million. The final piece is HJR 2 (88(2)), which puts this package (except the compression) on the November 7, 2023, ballot for voters to consider approving.

While it is good that there is so much going to tax relief, this package will make the tax system more complicated, make it more difficult to eliminate school M&O property taxes, contribute to higher school M&O property tax rates, and shift the burden around as homesteads and small businesses are chosen as the winners while renters and other employers are losers. The government should not be in the business of socially engineering people’s lives through the tax code by picking winners and losers, and this is exactly what this package does.

Paths to Eliminating Property Taxes
I have long researched and published on eliminating property taxes in Texas. There are different ways to do it, but the one discussed most recently by Texans for Fiscal Responsibility and Governor Abbott was the buy-down of school M&O property taxes until they’re eliminated, something I supported in a paper I co-authored in 2018. The plan has been through multiple iterations. My July 2021 co-authored paper looked at this buy-down approach of using 90% of state surplus dollars above a stricter spending limit of population growth plus inflation to compress school M&O property tax rates until they are zero within about a decade; the other approach explored in this paper was of tax reform that would broaden the sales tax base to eliminate those taxes immediately, without raising the rate, based on a dynamic economic model. Both of these were built on a strong spending limit, given spending is the ultimate burden of government on taxpayers.

The latest was a December 2022 co-authored paper where we address the affordability crisis in Texas and how the buy-down plan would help with this while providing more economic growth. I also wrote a 2023 paper updating this based on how quickly this could be done if a frozen budget with zero growth was used to provide more surplus funding to eliminate these property taxes. I also wrote another 2023 paper noting how there is no need to be fearful about a recession or reduced revenue as there would be the need for spending restraint or cuts, plenty of money in the rainy day fund, or excess reserves held by school districts to address any shortfall to maintain the relief and fund public education. 

Adding to this research were two professors at Rice University who, in 2018, also studied different reforms of the buy-down approach and the sales tax expansion approach to eliminate school M&O property taxes. They found that these approaches would provide substantial benefits to the state in terms of increased economic growth and job creation.
After reviewing different options for the buy-down approach, compression is best because everyone benefits, including from the dynamic effects of more growth, more jobs, and lower prices. It’s also the only way that’s being discussed today to get the school M&O property tax rate to 0%.

Another approach to provide property tax relief was pushed by the Senate this year and looks to be included in the bill passed in the second special session: raising the homestead exemption from $40,000 to $100,000. But this approach will never eliminate those taxes and will push the burden of funding spending to everyone else, making the system less equitable while quickly evaporating any relief from appraisal growth and making the path to elimination harder because rates will rise from it when school spending increases.

Given the different approaches discussed this year by the House and governor and then the Senate and lieutenant governor, I did an analysis of the median valued home in Texas of $350,000 in Austin, Houston, and Dallas. I used the tax rates for each of these locations and had the home increase in value by 10% per year, which is the maximum growth for a homestead under current law. I didn’t change anything else to provide an apples-to-apples comparison of a tax reform in 2023 to estimate what would happen over the next five years given a 1) $60,000 increase in the homestead exemption, 2) SB 1 (88(1)) with $60,000 increase in the homestead exemption and 10-cent compression (similar to tax relief package in second special session), 3) HB 1 (88(1)) with 16.2-cent compression, and 4) what would be largest tax cut in Texas history of $21 billion with a 25-cent compression. I should note that this modeling is just on a homestead, so it doesn’t account for the much more broad-based effects of the compression scenarios.

Austin
​The following three charts are for Austin, including Austin ISD, to see what these four scenarios would look like given the assumptions above in each year.

The first chart shows what would happen for total property taxes (i.e. ISD, city, county, and special purpose district property taxes) under these scenarios compared with the total tax paid of $5,945 for a $350,000 home in Austin. The results show that SB 1 and the 25-cent compression are similar; however, both of them would have only one year of lower total property taxes until 2025, when the amount paid would exceed that of 2023.

The second chart shows similar results as SB 1 and the 25-cent compression have the greatest effects on the 2023 ISD M&O property taxes of $3,089. However, HB1 also provides relief until 2028, when the amount paid would exceed that of 2023.

​But, more importantly, given these are only homesteads and don’t account for families who pay rent or own a business, the third chart’s example shows that HB 1 with 16.2-cent compression and the 25-cent compression cut the tax rate the most over time, as this compression in just 2024 continues to buy down the rate as values increase by 10%.

​Houston
​The following charts are for Houston, with similar results for each of the scenarios.

​Dallas
​The following charts are for Dallas, with similar results.

​In my conversations with CBS News Texas, ABC 13 Houston, and The Texan, I recently explained how compression is the gold standard to eliminate school M&O property taxes. I also recently wrote[VG1] how the Texas Legislature had the largest spending increase in Texas history this session, thereby not providing enough in property tax relief. I argued that Governor Abbott should veto the budget or at least $8 billion of budget items and use it for compression so that Texans get record relief. But that did not happen.
​
It should be noted that compression will help renters. The Texas comptroller’s report (see Table 33 below) finds that 26% of school property taxes is passed along to renters. Businesses submit 52% of those taxes, but people pay for them through higher prices, lower wages, fewer jobs, and higher rent. Simple supply and demand shows that the property taxes would rotate the private market supply of housing leftward, thereby raising rents and lowering the quantity supplied compared with the free market. In other words, the market does set the rents, but that market is distorted by property taxes, so removing those school taxes would help push down rents through competition. When the landlord has a vacancy and is paying lower property taxes, then she will lower the rent given lower cost to attract tenants. It may not happen overnight, but it will as that’s how competition works, and those businesses that don’t will be forced out of the market through losses. This wouldn’t just be a shift in supply of housing that would reduce rents; that would happen some when this tax is cut and certainly when it’s eventually eliminated, but that’s not the only way.

​The following chart shows that there’s movement down the demand curve as the supply curve corrects to the private supply curve (S1) rather than the distorted supply curve (S2) with the ad-valorem property tax, which will lower prices and increase the quantity supplied. This is through competition that will happen as consumers will have more negotiating power and landlords will want to rent out every unit but won’t if they don’t lower their rents, as their competition will because their costs have been reduced.

​From the fact that property taxes are going down, there’s a reduction in cost by the landlords, so they have the ability to get more renters at a lower rent. As renters know, if property taxes don’t go down, they will go to another location—hence more consumer power. The consumer has much power in every market if they choose to wield it, especially when government gets out of the way. Again, it wouldn’t change rents overnight, as many are in leases, but it would over time. One of the issues contributing to the affordability crisis in Texas, especially for lower-income folks, is skyrocketing property taxes. Any relief would be most appreciated by 100% of property holders through compression.

​​Lowering school M&O property tax rates through compression is the best path for everyone to benefit from lower taxes, more economic growth, and tax rates that would go to zero. Many groups shown in the page below have already stated their support for the buy-down plan, which was supported by the governor; the House passed much of it, though that was mostly thrown out in the final package. And they needed to add HB 16 (88(2)) by State Rep. Briscoe Cain, which would put in statute the buy-down plan to zero, along with his HB 17, which would impose spending limits on local governments.

​Conclusion
At the end of the day, I’m glad Texans are talking about property tax relief. Other states have been cutting taxes, so Texas can’t sit back and be competitive with other states without spending less and cutting taxes, as corporate welfare makes the problems worse. The Legislature unfortunately passed a revamp of the expired Chapter 313 in HB 5 during the regular session. This new version, called Chapter 403, provides property tax abatements issued by school districts to mostly big businesses. Fortunately, when school district M&O property taxes are eliminated, this corporate welfare will be eliminated, too.

There are so many reasons to eliminate property taxes. Texas will be an economic juggernaut! And what’s maybe the most important is that Texans will have more of their right to own property preserved instead of renting from the government forever with this immoral wealth tax known as property taxes. Raising the homestead exemption might be a part of the final deal, but we should remember that it picks winners and losers, is not sound tax policy, and has been tried three times (1997, 2015, and 2021) without substantial reductions in those taxes paid.

I​’m okay with broadening the sales tax base and eliminating school M&O property taxes immediately and using surplus dollars above a stricter spending limit to buy down sales taxes over time. This would also broaden the sales tax base for local governments, which should use those funds to buy down their own property taxes and limit their spending with a restrictive limit like the state’s based on population growth and inflation to use surplus dollars to buy down the rest until they are zero. But there isn’t the political will yet to take this approach, so the best way right now is the buy-down path for school property taxes by the state and local government buying down their own could happen over the next decade for the eventual elimination of all property taxes in Texas. The way to do this is by sufficiently reining in government spending, which the Legislature did not do this session—thereby wasting an unprecedented opportunity to do something big.

Eliminate school property taxes first, then find a way to eliminate the rest. My preference is to limit all local government spending to the state’s spending limit based on population growth and inflation, and use 90% of their surpluses to buy down their own property taxes until they are zero. This is a path to giving Texans their God-given right to own property. Get tax relief done for Texans! Stop renting, start owning!

Originally published by Texans for Fiscal Responsibility. 

​Key Point: Texas is a leader in job creation over the last year and since February 2020. But Texas faces major headwinds as the recently ended 88th Legislature looked more like California than what is expected from the free-market bastion of hope and prosperity in Texas, which could change during special sessions but nothing certain yet. The path forward must be one of free-market capitalism instead of expanding the size and scope of government to let people prosper.
 
Overview: Texas has reached a new record high in total nonfarm employment for the 20 straight months. The 88th Legislature ended on May 29 and went straight into a special session to provide property tax relief but that hasn’t happened yet, and the second special session ends on June 27. Instead, the Legislature passed the largest spending increase in the state’s history, the most money for corporate welfare, one of the largest expansions of safety nets, and no school choice. This was a huge, missed opportunity for Texas that will set up a fiscal cliff with so much spending, less competition with fiscally conservative states, and less opportunity for flourishing which combined will stop the Lone Star State from being a leader in the country.
 
Labor Market: The best path to let people prosper is free-market capitalism as it is the best system that supports jobs and entrepreneurship for more people to earn a living, gain skills, and build social capital. Table 1 shows Texas’ labor market for May 2023.

​The payroll survey shows net nonfarm jobs in Texas increased by 51,000 last month, resulting in increases for 36 of the last 37 months, to bring record-high employment to 13.9 million. Compared with a year ago, total employment was up by 529,800 (+4.0%)--fastest growth rate in the country—with the private sector adding 472,000 jobs (+4.1%) to 11.9 million and the government adding 57,800 jobs (+2.9%) to 2.0 million. But there continued declining inflation-adjusted average weekly earnings in most industries in Texas (see Figure 1).

​The household survey shows that the labor force participation rate is higher and employment-population rate is slightly lower than in February 2020, but the former is well below June 2009 at the trough of the Great Recession. The state’s unemployment rate of 4.1% is higher than the U.S. rate of 3.7% but this is weak indicator as it’s highly volatile based on changes in the labor force.
 
Economic Growth: The U.S. Bureau of Economic Analysis (BEA) reported the real gross domestic product (GDP) by state for 2022. Figure 2 shows Texas had the fifth fastest real GDP growth of +3.4% to $1.9 trillion (above the U.S. average of +2.1% to $20.0 trillion). 

​The BEA also reported that personal income in Texas grew by 5.3% to $1.9 trillion in 2022 which was the third highest in the country. This is behind Idaho (+6.2%) and Colorado (+5.4%) but well above the U.S. growth rate of 2.4% (to $21.8 trillion).
 
Bottom Line: As Texans face an affordability crisis from high inflation and high property taxes and an uncertain future with the U.S. economy likely in a deepening recession, they need substantial relief to help make ends meet. Other states are cutting, flattening, and phasing out taxes, passing responsible budgets, and passing school choice, so Texas should have made bold reforms to support more opportunities to let people prosper, mitigate the affordability crisis, and withstand destructive policies out of D.C. Figure 3 provides a comparison of the size of government, economic freedom, and economic outcomes among the four largest states, Tennessee, Georgia, and Louisiana. 

​While Texas does relatively well, there is much more to do for more liberty and prosperity. Unfortunately, the Texas Legislature failed to achieve these needed policy objectives in the regular session of 2023 so Governor Greg Abbott (R) called them back to provide property tax relief which hasn’t yet so will have to call them back again for this along with passing school choice and should bring them back to eliminate corporate welfare and expansion of safety net programs.
​
Free-Market Solutions: The Texas Legislature should improve the Texas Model by:

• Passing pro-growth policies to:
  • Spend Less: Lower state government spending and pass responsible local spending limit.
  • Tax Less: Start eliminating local property taxes with historic surpluses at the state and local levels.
  • Regulate Less: Improve workforce development, remove barriers to work, reduce occupational licensing, reform safety nets, and enact school choice.
• Strengthening the Texas Model, which recently ranked as the 4th best in economic freedom, will help Texans better resist D.C.’s overreach and flourish more for generations to come.

​Thank you for reading the Let People Prosper newsletter, which today includes the 12th episode of "This Week's Economy,” where I briefly share insights every Friday on key economic and policy news across the country.
​
Today, I cover:
1) National: New Pew Research poll reveals that inflation is the top concern for Americans on both sides of the political aisle, Fed needs to do more, and financial markets remain loose;
2) States: New state-level jobs report and which states are leading and breakdown of the largest spending increase in Texas history and why it's not good for keeping the Texas Model strong; and
3) Other: The importance of educating young audiences on capitalism and socialism and my experience teaching with a "minimum wage" game to a group of high school students.

​You can watch this episode and others along with my Let People Prosper Show on YouTube or listen to it on Apple Podcast, Spotify, Google Podcast, or Anchor. Please share, subscribe, like, and leave a 5-star rating!
​
For show notes, thoughtful insights, media interviews, speeches, blog posts, research, and more, check out my website (https://www.vanceginn.com/) and please subscribe to my newsletter (www.vanceginn.substack.com), share this post, and leave a comment.

​​But those calculations use fuzzy math as they're based on inflating the 2022-23 base budget of general revenue not dedicated by the constitution and consolidated general revenue with more spending then increasing it by the rate of population growth times inflation of 12.33% (determined by the average of population growth times inflation over the last two years and the upcoming two years) compared with 2024-25 appropriations which will be higher later when the supplemental bill passes. These calculations are then spending-to-appropriations which are like comparing apples with oranges, not appropriate accounting.

Even with these calculations, the Legislative Budget Board shows that there is $10.7 billion in tax revenue remaining, $1.6 billion available under the constitutional spending limit using general revenue not dedicated by the constitution, and $11.8 billion available under the 2021 spending limit using consolidate general revenue using general revenue and dedicated general revenue.

​The charts below are more accurate ways to evaluate the budget growth from an appropriations-to-appropriations approach for an apples-to-apples comparison.

Understanding that any growth in the budget means an expansion of government, there are two strong arguments:

1) Freezing the budget in inflation-adjusted per capita terms using the rate of population growth plus inflation (i.e., Conservative Texas Budget and responsible budget approach in other states), which was 16% over the last two fiscal years,  is appropriate as it grows slower than the economy over time. This approach excludes $13.3 billion in COVID-related funding in the first biennium and excluding new and old property tax relief amounts of $6.2 billion ($100 million in new relief) in the first period and $17.6 billion ($12.3 billion in new relief and $5.3 billion in old relief) in the second period to not include one-time federal funding and amounts that don't grow government. 

Using the CTB approach above, here's how the budget has improved since implementation of the CTB started with the 2016-17 budget. This looked much better before the current 2024-25 budget, but the massive growth of the current budget raised the growth of initial appropriations even as the rate of population growth plus inflation rose slightly during the latter five budget period. If the growth of the budget is not controlled, it will soon surpass the rate of population growth plus inflation like it did during the prior six budget periods.

​Both of these approaches show that while the general revenue-related (GRR) funds amount is below the rate of population growth and inflation (either plus or times) for the CTB approach, the broader measures of state funds and all funds that better represent the burden of government spending on taxpayers are well above either metric. And when using the Frozen Budget approach, the only budget amount below either rate of population growth and inflation is federal funds.

​In other words, they are using fuzzy math when it comes to the budget and property tax relief. This looks much more like what would be done in California rather than Texas. This is not what Texans want or expect from their elected officials. If this continues, Texas will be California soon.

There’s time to turn some of this around with at least passing more for property tax relief that does it correctly (here's why) for everyone through compression of school M&O property taxes on their path to zero. It would be great if they could get to $21B in new relief, which is the $14.2 billion in property tax relief provided in 2008-09 adjusted for inflation, instead of the $12.3B currently discussed but that looks unlikely now so it won’t be the largest property tax relief in Texas history.

The red state of Texas must not sit back on its laurels. The populist trend must not continue. Do what's in the best interest for everyone which is limiting or cutting government spending, taxes, and regulations so that there's more freedom for people to do what's in their best interest and let people prosper.

Thank you for joining me for the Let People Prosper podcast, which today includes the 12th episode of "This Week's Economy,” where I briefly share insights every Friday on key economic and policy news across the country.

​Today, I cover:
1) National: What the new market data and latest jobs report indicate about the current economy, insights from the Establishment and Household Surveys, and my thoughts on the recently passed debt ceiling deal;
2) Texas: Discussion on the latest efforts in Texas to eliminate property taxes with a buy-down of school M&O property taxes using state surplus funds for what’s called compression (details here), and why this is the best path forward for Texas to prosper;
3) Other: Sneak peek of next week's exciting podcast episode with Leslie Ford discussing safety net reforms. Please like this video and subscribe to the channel if you enjoyed this podcast!

And don’t miss my latest Daily Caller article on the debt ceiling deal: 

​You can watch this episode and others along with my Let People Prosper Show on YouTube or listen to it on Apple Podcast, Spotify, Google Podcast, or Anchor. Please share, subscribe, like, and leave a 5-star rating!

For show notes, thoughtful insights, media interviews, speeches, blog posts, research, and more, please check out my website (https://www.vanceginn.com/) often for updates and subscribe to my newsletter to receive these episodes and more in your inbox.

Texas Governor Greg Abbott then tweeted that his plan is the plan outlined by the Texas Public Policy Foundation which uses state surplus dollars for compression of ISD M&O property taxes each session until they are zero.

I’m very familiar with this plan as I co-authored the original version with my former colleagues at TPPF in 2018. The plan has been through multiple iterations. My July 2021 co-authored paper looked at this buy-down approach of using 90% of state surplus dollars above a stricter spending limit of population growth plus inflation to compress school M&O property taxes until they are zero within about a decade or a tax reform that would broaden the sales tax base to eliminate those taxes immediately without raising the rate based on a dynamic economic model. And the latest was a December 2022 co-authored paper where we address the affordability crisis in Texas and how the buy down plan would help with this while providing more economic growth.

​I also wrote a 2023 paper updating this based on how quickly this could be done if a frozen budget with zero growth was used to provide more surplus funding to eliminate these property taxes. And I also wrote another 2023 paper noting how there is no need to fear about a recession or reduced revenue as there would be the need for spending restraint or cuts, plenty of money in the rainy day fund, or excess reserves held by school districts to address any shortfall to maintain the relief and fund public education. ​

Two professors at Rice University also studied different reforms in 2018 of the buy down approach and the sales tax expansion approach to eliminate school M&O property taxes and they found that these would provide substantial benefits to the state.

Houston
​The following charts are for Houston with similar results for each of the scenarios. ​

Dallas
The following charts are for Dallas with similar results. 

It should be noted that compression will help renters. The Texas Comptroller's report (see figure below) finds that 26% of school property taxes are passed along to renters, and businesses submit 52% of those taxes but people pay for them through higher prices, lower wages, fewer jobs, and higher rent.

Simple supply and demand shows that the property taxes would rotate the private market supply of housing leftward thereby raising rents and lowering the quantity supplied compared with the free market. In other words, the market does set the rents but that market is distorted by property taxes so removing those school taxes would help push down rents through competition.

When the landlord has a vacancy and is paying lower property taxes, then she will lower the rent given lower cost to attract tenants. It may not happen overnight but it will as that’s how competition works, and those biz that don’t will by forced out of the market through losses.

Texas’ 88th regular legislative session, sine die as of Memorial Day, will be remembered as the one that got Texas closer to looking like California and less like the leading pro-market and limited government Lone Star State.

Instead of the desired “largest property tax cut in Texas history,” school choice, and spending restraint that would best let people prosper, legislators passed the largest increases in spending, corporate welfare, and safety nets in state history.

Texas taxpayers can only hope that Gov. Greg Abbott’s (R) just-called special session will help with property tax relief but there will need to be more special sessions for universal school choice and other pro-prosperity priorities.

The newly passed total budget for the upcoming two-year period amounts to $321 billion, which is a 21.3% increase from what was initially appropriated in the prior period. Excluding federal funds, state funds increased by 31.7% to $219.1 billion. These are the largest increases in recent history and likely ever. And both are substantially above the rate of population growth plus inflation of 16% over the last two fiscal years.

In short, legislators passed massive budget increases which aren’t conservative or responsible and will make it difficult to sustain these expenditures over time. Making matters worse, the Legislature provides over $10 billion in new corporate welfare, the largest amount in state history.

This includes renewal of property tax abatements by school districts, HB 5, that had died in December 2022, money for the governor’s Texas Enterprise Fund, and subsidies for natural gas projects, movie production, broadband projects, water projects, state parks, and more.

And much of this will be on the ballot this November to create new funds to spend on these efforts, which voters should reject. Instead, these expenditures should be done in the normal budget process as constitutionally dedicating these taxpayer dollars will remove them from under the constitutional spending limit, allowing the state to spend even more.

Texans were quick to celebrate the movement toward new property tax relief efforts, which is a major burden for property owners across the state. And with a surplus of $33 billion, there was the opportunity to do so by rightfully returning these over collected taxes.

But those cuts never materialized in the wake of less effective solutions of appraisal caps and homestead exemptions taking precedence over the previously promised historical property tax cut.

The gold standard for relief of school district maintenance and operations property taxes is through compression, which means that the state uses mostly sales taxes to buy down those property tax rates and thus tax collections by the most possible. And the amount should be about $21 billion, or 25-cent compression, in inflation-adjusted dollars to have the same purchasing power today as what was the largest property tax cut of $14.2 billion in 2008.

This is a critical path to eliminating nearly half of the property tax burden in Texas so people can truly own their property instead of renting from the government forever.

Still, any relief provided is made much less effective with the passage of HB5, which is just Chapter 313 revamped.

HB5 gives more corporate welfare to big businesses by allowing school districts to give tax breaks to companies for new buildings, thereby choosing winners and losers among school districts affected. As school districts lose property tax funds at the hands of HB5, state funds must compensate for the loss on the backs of taxpayers across the state.

These big spending, big corporate welfare, and no tax relief represent a potential turning point in the wrong direction that harms a robust economy.

In the first called special session this week, there has already been a bill passed by the Texas House that would provide that opportunity by compressing school district M&O property taxes by 16.2 cents per $100 valuation with $12.4 billion. The Texas Senate has a proposal that would compress those taxes by 10 cents per $100 valuation and raise the homestead exemption by $60,000 to $100,0000 with $12.1 billion.

​So far, Gov. Abbott has said that the call was only for compression but Lt. Gov. Dan Patrick (R) has been pushing back. At the end of the day, compression is best as it helps everyone, is long-lasting as a share of taxable value, and, more importantly, is the only way to eliminate these taxes.

But what’s still a problem is that these amounts are only about one-third of the $33 billion surplus, meaning the Legislature wants to spend more money than return to taxpayers. This is not the path to prosperity as at least $21 billion in new tax cuts is needed for this to be the largest property tax relief in Texas history.

Lawmakers should prioritize responsible relief measures that encourage job growth and support initiatives that promote long-term economic prosperity by reducing spending, cutting taxes, and supporting prosperity.

​Originally published by The Center Square.

Larry and Glenda Legler think the state should be using much of its nearly $33 billion surplus to give Texans a break on their property taxes.

Larry Legler said, "The state's got an ungodly amount of money that they need to do something with."

But after months of promises to do that, Republican leaders still can't agree on the way to provide relief. "That's what's getting frustrating."

Governor Greg Abbott prefers ending the school maintenance and operations or "M&O" portion of your property taxes over ten years.

That portion alone is about 42% of your property tax bill.

To make that happen, the state would shift sales tax, other state revenues, and surplus money to pay for public schools.

That would allow the state to gradually reduce the rate for M&O property taxes until they're eliminated altogether.

Vance Ginn, a conservative economist and president of Ginn Economic Consulting, has pushed this idea for years. "It's the only way that you can get to $0 school district property taxes is by buying down those rates because that rate can go to zero which zero out of a hundred-dollar valuation for a home is $0. And so that is still $0, and you've eliminated that tax."

But Lt. Gov. Dan Patrick and the Texas Senate have a different plan.

While it uses more state revenues and less property taxes to pay for schools, it would also increase homestead exemptions for most homeowners from $40,000 to $100,000.

And for homeowners over 65, it would raise homestead exemptions from $70,000 to $110,000.

Patrick said it would provide nearly double the savings for homeowners than the Governor's plan.

CBS News Texas asked Patrick earlier this week if he doesn't support eliminating the school property tax.

He said, "You can't get there. You only have sales tax to prop up a state of 30 to 35 to 40 million people the next decade. What happens when we have a decline and sales taxes go down? You'll have no money to pay your bills. You can't be a one-legged horse."

Ginn disagreed. "The Comptroller said we're going to have about $27 billion in the rainy-day Fund. The rainy-day fund is there to cover unforeseen revenue shortfalls which would be exactly this sort of situation."

Abbott said 30 business and other groups support his plan.

The Leglers said because they're seniors, they prefer the plan from Patrick and the Senate. "Everything's gone sky high and when people can't get the medications they need, which is not our case, but many people we know, or they can't afford groceries, a loaf of bread at the grocery store, we got a problem."

Both the House and Senate have approved different legislation, and until they pass the same bill, the Governor cannot sign it into law. 

Abbott will speak Friday about this, and other issues related to the regular and special legislative sessions. 

Originally published by CBS Texas.

​Key Point: Texas is a leader in job creation over the last year and since February 2020 (Figure 1 by @SoquelCreek). But Texas will struggle to compete with other states or prosper more as the 88th Legislature passed the largest budget increase in the state’s history, passed the largest corporate welfare increases in the state’s history, passed the largest safety net increases in the state’s history, didn’t pass property tax relief, and didn’t pass school choice. Governor Greg Abbott called a special session to tackle property tax relief and border security with more special sessions likely to come. 

​Overview: Texas has been a leader in the country’s economic recovery since the costly shutdown recession in Spring 2020. This includes reaching a new record high in total nonfarm employment for the 19th straight month. The current 88th Legislature ended the regular session on May 29 with a record surplus but chose to pass the largest spending and welfare increases in the state’s history without passing tax relief or school choice. This was a huge, missed opportunity for Texas that will set up a fiscal cliff with so much spending, less competition with fiscally conservative states, and less opportunity to let people prosper which combined will stop the Lone Star State from being a leader in the country. Fortunately, Governor Abbott called what is likely the first of multiple special sessions to tackle property tax relief (and border security).
 
Labor Market: The best path to let people prosper is free-market capitalism as it is the best system that supports jobs and entrepreneurship for more people to earn a living, gain skills, and build social capital. Table 1 shows Texas’ labor market for April 2023.

​The establishment survey shows net nonfarm jobs in Texas increased by 33,300 last month, resulting in increases for 35 of the last 36 months, to bring record-high employment to 13.8 million. Compared with a year ago, total employment was up by 534,600 (+4.0%)--second fastest growth rate in the country to Nevada (+4.2%)—with the private sector adding 476,800 jobs (+4.2%) and the government adding 57,800 jobs (+2.9%).
 
The household survey shows that the labor force participation rate is higher and employment-population rate is slightly lower than in February 2020, but the former is well below June 2009 at the trough of the Great Recession. The state’s unemployment rate of 4.0% is higher than the U.S. rate of 3.4% but this is weak indicator as it’s highly volatile based on changes in the labor force. There is also continued declining inflation-adjusted average earnings in Texas.
 
Economic Growth: The U.S. Bureau of Economic Analysis (BEA) reported the real gross domestic product (GDP) by state for 2022. Figure 2 shows Texas had the fifth fastest real GDP growth of +3.4% to $1.9 trillion (above the U.S. average of +2.1% to $20.0 trillion). 

​The BEA also reported that personal income in Texas grew by 5.3% to $1.9 trillion in 2022 which was the third highest in the country. This is behind Idaho (+6.2%) and Colorado (+5.4%) but well above the U.S. growth rate of 2.4% (to $21.8 trillion). Figure 3 shows personal income growth across the country.

​Bottom Line: As Texans struggle from high inflation and high property taxes and an uncertain future with the U.S. economy likely in a deepening recession, they need substantial relief to help make ends meet. Other states are cutting, flattening, and phasing out taxes, passing responsible budgets, and passing school choice, so Texas must make bold reforms to support more opportunities to let people prosper, mitigate the affordability crisis, and withstand destructive policies out of D.C. Figure 4 provides a comparison of the size of government, economic freedom, and economic outcomes among the four largest states and nearby Louisiana. While Texas does relatively well, there is much more to do for more liberty and prosperity. Unfortunately, the Texas Legislature failed to achieve these needed policy objectives in the regular session of 2023 so Governor Greg Abbott is calling them back where the Legislature should spend less, provide more in property tax relief, pass school choice, and reduce or eliminate corporate welfare and expansions of safety net programs.

​Free-Market Solutions: The Texas Legislature should improve the Texas Model by:

• Passing pro-growth policies to:
  • Spend Less: Lower state government spending and pass responsible local spending limit.
  • Tax Less: Start eliminating local property taxes with historic surpluses at the state and local levels.
  • Regulate Less: Improve workforce development, remove barriers to work, reduce occupational licensing, reform safety nets, and enact school choice.
• Strengthening the Texas Model, which recently ranked as the 4th best in economic freedom, will help Texans better resist D.C.’s overreach and flourish more for generations to come.

​State leaders promised “historic” property tax relief this session, but though it is near the finish line, it will not make it past the checkered tape before the body adjourns sine die on Monday.

Last summer, Gov. Greg Abbott called on the Legislature to appropriate “at least half” of the then-$27 billion projected budget surplus to provide “the largest property tax cut ever in the history of Texas.” The comptroller’s January Biennial Revenue Estimate increased that total to $32.7 billion in the state treasury and $27 billion in the Economic Stabilization Fund, also known as the state’s savings account.

That’s a lot of tax dollars to disburse, and number one on Abbott’s list was property taxes — which was also high on the list of both chambers.

But after a lengthy, attention-grabbing impeachment proceeding against Attorney General Ken Paxton on Saturday afternoon, the clock ticked on toward the midnight deadline to distribute the conference committee report for the last-remaining property tax proposal.

And then, some Sunday evening scrambling on a last-minute deal turned out to be more smoke than fire — the House conferees announced the signing of a deal last night, and posted a picture of them waiting for the Senate’s conferees to come sign it, but that ultimately did not happen. Details of that blueprint have not been disclosed as both sides have kept their cards close to their chest.

The Texan can confirm that plan included the $12 billion for rate compression, a $70,000 standard homestead exemption, a $100,000 elderly and disabled homestead exemption, and a 7.5 percent appraisal cap on all real property.

After a hastily convened meeting with Lt. Gov. Dan Patrick and Abbott, Speaker Dade Phelan (R-Beaumont) made a beeline for the House dais and adjourned the body until Monday morning with no deal announced on marquee property tax relief.

Discussions continued into Monday morning but no deal was struck — appraisal caps being the point of insurmountable disagreement. Abbott tacitly weighed into the debate, gesturing at putting rate compression above all else, but it did little to move the needle one way or the other.

The Texas House passed a revamped version of Senate Bill (SB) 3 on May 19 — a plan that included $12 billion for new rate compression and the 5 percent appraisal cap on all property from its original plan. But it also included a $100,000 homestead exemption, double what the Senate included in its proposal.

Ultimately, the two sides could not coalesce on a compromise; the House dug its heels in for an appraisal cap reduction and extension, while the Senate dug its heels in against it. The ramped-up homestead exemption was not enough to entice the upper chamber to swallow the appraisal cap pill. Lt. Gov. Dan Patrick has maintained it to be a total non-starter in the upper chamber.

As passed by the House, SB 3 would have amounted to $16.3 billion in property tax curtailment, plus the $5.3 billion already in the budget to maintain previous levels of compression.

Because of this stalemate, and the emphasis Abbott has placed on it, property tax relief is sure to be on the list of issues for the coming special session — expected, but not yet confirmed, to start Tuesday. Property tax relief was on the governor’s list of emergency items at the beginning of the session.

Even with the appraisal reform stalemate, there is a starting point of common ground between the chambers. The 2024-2025 state budget, approved by both chambers over the weekend, earmarks $17.3 billion for rate compression — $5.3 billion to maintain previous levels and $12 billion to add to it.

The budget has no line item for homestead exemption increases and the appraisal cap extension would not require any financial injection. When the two bodies reconvene, it’s unclear how this stalemate could be resolved other than both just throwing up their hands and moving forward only with the rate compression — the aspect they both agree on.

The previous record for the largest property tax cut is $14 billion in the mid-2000s. Both chambers of the Legislature have said their plans surpass that line — including the $5.3 billion to maintain current levels.

Critics of that claim — such as Vance Ginn, former chief economist for the Texas Public Policy Foundation — have set the line at $20 billion in today’s dollars accounting for inflation, and also say that the entire sum of dollars going toward property tax relief should be allocated to compression.

On top of this, add in the fact that to maintain levels of compression next biennium, the state will have to allocate the same amount of money toward it. Otherwise, tax bills will jump.

Before the House adjourned sine die, Lt. Gov. Dan Patrick issued a letter asking for Abbott to include the Senate’s property tax plan — a $70,000 standard homestead exemption, $30,000 elderly and disabled homestead exemption, a $25,000 business personal property tax exemption, and a business inventory tax credit — among a litany of other priorities.

Despite the appraisal stalemate running out the clock on this session, the Legislature will quickly have another go at the issue and the chance to fulfill the promises made before and during the 88th regular session.

Originally published by The Texan.