In Texas, we dream big. That’s what House Bill 59 does—it imagines a Texas that lightens the tax burden on Texans, upholds property rights and ensures that education is properly funded.
Authored by Rep. Andrew Murr, R-Junction, the bill would eliminate the school maintenance and operations portion of your property tax bill on Jan. 1, 2024, and would create a legislative commission that would use the intervening time to study the best way to replace that revenue. This bill would cut local property taxes nearly in half while adhering to the state’s constitutional responsibility of funding government schools.
The key to achieving this, of course, is restraining government spending at the state and local government levels.
The fact is that the skyrocketing local property tax burden remains one of the state’s most pressing policy challenges. Property taxes have been growing faster than the average taxpayer’s ability to pay for them. Any growth over population-plus-inflation represents a growth in government above our ability to pay. For more on this formula, which we call the Conservative Texas Budget, click here.
According to the Tax Foundation, Texas has the seventh most burdensome property tax on homeowners. Using a different calculation, Fox News ranks Texas third-worst.
Too many have been forced out of their homes and businesses because of rapidly rising property taxes.
It would be great to eliminate all property taxes, which tend to hurt lower-income earners the most, so Texans can stop effectively renting from the government forever.
A good start in that process would be to eliminate school district M&O property taxes, which account for nearly half of the total property tax burden on Texans. Eliminating just the school district M&O property taxes is rather straightforward because the state determines the funding formulas for the school finance system, and it represents nearly half of the property tax levy across the state.
The question is how to replace this revenue. That’s easy—with a broader-based sales tax.
State sales taxes have grown far less than property taxes, less than personal income, and more closely with population growth plus inflation. This indicates that moving to a system based on the sales tax better aligns with the average taxpayer’s ability to pay for these taxes that fund government spending over time.
There are some important reasons why a sales tax is the better way to fund schools.
First, property taxes are inefficient. Property taxes in Texas are based primarily on subjective valuations by appraisal review boards and tax rates determined by local tax entities with little to no feedback from citizens, creating a highly inefficient collection mechanism.
Next, property taxes are more regressive than sales taxes. 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 high property tax also prevents many low-income earners from purchasing their first home and forces many others who do purchase to struggle to keep their home—they may even lose it.
Finally, during recessions (like the recent pandemic), lower-income earners tend to face the highest levels of unemployment and are least able to shoulder a tax burden. Their property tax burden, however, would increase relative to their income, while their sales tax burden would fall more proportionately with their income.
The sales tax is money that comes directly from the choices of consumers. It ensures that all financial power remains within their control, whereas property taxes are a burden that is forced upon all taxpayers with little means of working around it.
It would work—and result in fully funding schools based on the state’s school finance system.
Economists of the Baker Institute at Rice University studied the economic effects of replacing property taxes with sales taxes over time. They found that just a 3.6% decrease in school district M&O property taxes could contribute to a $14.3 billion increase in economic output and 217,000 new jobs after just the first year of reforms and more thereafter. Imagine if we eliminated that burden!
By combining property tax reductions and reform with spending limitations, Texas could shift to a more efficient and fairer sales tax system. In this way, Texans can be assured meaningful, lasting, property tax relief and an improved Texas Model that will sustain economic prosperity for generations.
Vance Ginn, Ph.D.