Texans are on the verge of getting some decent property tax reforms.
Senator Paul Bettencourt’s Senate Bill 2, the 2019 Property Tax Reform and Relief Act, was passed out of the Senate Committee on Property Tax on February 11, 2019. Now it sits before the full Senate for consideration.
This bill is the culmination of years of pent up frustration from Texan homeowners.
During the past few years, Bettencourt felt the pressure from his constituents in the Houston area. Hundreds of Houstonians complained about their tax burden in front of the Senate Select Committee at the University of Houston on May 10, 2016.
These taxpayers have every reason to complain. According to the Click 2 Houston’s report, “Harris County has seen a 43 percent tax levy increase – 26 percent in Fort Bend, and 15 percent in Galveston County” from 2013 to 2016.”
Fast forward to 2019, it appears that Texas’s political class is waking up.
Many proponents of the status quo argue that Texas need high property taxes because it has no income tax, which is a good thing when considering how convoluted our current federal income tax system is. However, Ross Kecseg of Texas Scorecard soundly refutes high tax justifications.
On average, “no-income tax” states impose roughly identical tax bills on homeowners when compared to the average among states with a personal income tax. And these figures are adjusted for median home values.
One thing to note is that income taxes tend to fund state government services, whereas property taxes fund local government services. But here’s the million-dollar question: How does Texas compare to the other states without income taxes? Kecseg reveals some shocking numbers.
Texas ties New Hampshire for having the highest property taxes on homeowners, and by a huge margin. In fact, households in both Texas and New Hampshire pay, on average, sixty percent higher tax bills than those in the seven other “no-income tax” states.
That means for every $1 of property taxes paid to local governments elsewhere, households in Texas and New Hampshire pay $1.60, or more.
Texas property tax numbers look even worse when juxtaposed to other “no-income tax” rivals:
When you compare property tax burdens between Texas and the “no-income tax” states lowest on the list, the gap widens dramatically. Texas households pay 83 percent higher taxes than those in Washington, 102 percent higher than Nevada, 213 percent higher than Wyoming, and more than 230 percent higher than taxpayers in Tennessee.
New Hampshire and Texas homeowners pay the third and sixth highest property tax rates in the nation and also pay higher taxes than any of their no income tax counterparts.
However, New Hampshire does not levy a sales tax at the state or local level. Texas, on the other hand, features local and state level sales tax along with “gross margins” taxes on businesses.
Apart from property taxes, New Hampshire only taxes investment income on capital gains, interest, and dividends. For that reason, New Hampshire gets the “low-tax” label, despite having the third highest property taxes in the nation.
Policy experts in Texas recognize this troubling trend. James Quintero of the Texas Public Policy Foundation reveals that in the past decade statewide property taxes have increased by 60 percent, while the population only grew by 19 percent.
Quintero’s solution is similar to Paul Bettencourt’s bill in the Senate; require voters to approve a property tax increase. The 2019 Property Tax Reform and Relief Act is a good first step, however, it still does not strike at the root of the problem – government spending.
First, these taxes must be reduced. To do so, Texas must address its education spending problem. Education spending has increased by 7.6 percent in real terms from 2004 to 2016.
Plus, increased spending has created over-bureaucratization of Texas education as Vance Ginn and Trey Berthelot have highlighted:
From FY 1993 to FY 2015, student enrollment at public schools in Texas increased by 48 percent while non-teaching staff increased by 66 percent and teachers increased by only 56 percent. Public education spending should be dedicated to benefitting students, not excessively expanding administrative staff at schools.
Property taxes in Texas generally go towards public schools. With an entrenched bureaucracy in the Texas education system, spending will only go up. In turn, property taxes will continue to rise.
To tame Texas’ growing tax dilemma, Texas must look at overhauling its education system and cutting out bureaucracy.
A good place to start would be implementing school choice statewide.
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