Chairman of the Texas House Ways and Means Committee, Representative Dustin Burrows (R-83rd) conducted a Facebook Live event discussing property tax reduction in Texas. He quoted a previous Committee Chairman that the problem with plans to reduce property tax in Texas inevitably creates winners and losers. The winners never thank you, and the losers remember at the next election.
Chairman Dustin Burrows’ live event included Texas Taxpayers and Research Association (TTARA) President Dale Craymer and fellow State Representatives Drew Springer and Andy Murr. The discussion centered around providing meaningful property tax relief to voters in Texas who are continually complaining about the oppressive property tax bills on their homes. The school district property taxes are, on average, about 50% of the average homeowner’s property tax bill.
The Texas Constitution prohibits the state from imposing a property tax. It also requires the state to fund basic education for its citizens. The maintenance and operating (M&O) portion of local school districts’ property taxes are about $55 billion per biennium. (Texas budgets in two-year biennium cycles.) If the state could eliminate the M&O portion of property taxes, it would have to raise about $28 billion in annual taxes from some other sources. That is not a static number; it would continue to grow over time. If the state could do that, it would have the impact of cutting the average homeowner’s property taxes in half.
Half is a meaningful reduction. Any time you attempt to make a tax change, the benefit must be meaningful, and the impact on those paying the increased taxes palatable.
There are few alternatives to increasing taxes. Tax exemptions are about $45 billion a year. It looks promising until you realize that 50% of those are taxed elsewhere. No state taxes raw material for manufacturing so that eliminates another large amount. Taxing food and drugs would produce $5 billion, but the amount it would cut property taxes is not enough to suffer the consumer backlash.
Representative Drew Springer submitted HB2915 in the last legislative session. It would have extended the sales tax to bottled water, snack foods: things people already think are being taxed. It would have created a tax on electric vehicles and on the sale of heavy equipment. It would have extended sales taxes to auto repair services and barbershops. It failed to pass. While two-thirds of property taxes in Texas are paid by businesses, Representative Springer’s bill would have balanced tax increases between business and the public.
Representative Andy Murr proposed a bill (HB297) that would have eliminated the M&O property taxes for school districts and made it necessary for the legislature to come up with a tax plan to replace them during the interim. It passed the House but failed in the Senate.
The tax plans frequently suggested include a low-rate, broad-based value-added tax. Economists love this tax because it taxes only the value-added provided by a company. This works well for manufacturers who would be able to deduct the raw materials that went into a finished product. It does not work well in the service industry.
Chairman Burrows praised the effort in the last session to raise the sales tax for a dollar-for-dollar reduction in property taxes. He expressed the opinion that making that choice would require a great deal of discussion with constituents and members before the session. Bringing it up mid-session was destined to fail.
The group concluded that any meaningful tax changes must be acceptable to the public.