In accordance with Gov. Greg Abbott's call for property tax cuts in the state of Texas early this year, both the House and the Senate have proposed tax cut packages that differ, but share a similarity that affects how taxpayers interpret the tax relief number.
James Quintero, director of the Center for Local Governance at Texas Public Policy Foundation (TPPF), calls out the fact that both chamber packages include previously passed tax relief from 2019.
During the governor's third inaugural address on Tuesday, Jan. 17, he highlighted Texas’ economic success and called for record-breaking property tax cuts for the first time this year. “We now have the largest budget surplus in the history of our state," Abbott said in the address. "But make no mistake, that money does not belong to the government. It belongs to the taxpayers. We will use that budget surplus to provide the largest property tax cut in Texas history.”
Quintero shed light on the tax packages now under consideration and what they will mean for taxpayers.
"Both the House and Senate tax cut packages include approximately $5 billion for tax rate compression promised under 2019’s school finance overhaul, House Bill 3. However, that funding has been appropriated for the 2024-25 biennium, as per the House and Senate’s preliminary budgets," Quintero told the Austin Journal. "This means that taxpayers will feel the effect of the promised relief over the next two years, in addition to any new relief," he said.
Quintero breaks down how much new property tax relief is being offered by both chambers. "Everything is still very much in flux," he told the Austin Journal. "However, the House is offering approximately $12 billion in new property tax relief while the Senate is offering about $11 billion in total tax reductions. Conservative groups, like the Texas Public Policy Foundation, are urging both chambers to go bigger, especially on the tax compression component. There’s still more we can do."
The House and the Senate hold major discrepancies over how to expend the property tax relief that's been promised for some time by the state’s top Republicans, with leaders from the two chambers disagreeing over their main proposals, The Texas Tribune reported. The House’s chief idea to cut taxes is to limit property appraisals for homes and businesses, while the Senate seeks to boost the state’s homestead exemption and give targeted tax cuts to businesses. The House bill also provides for some $2.7 billion more in property tax cuts than the Senate version includes.
According to Texans for Fiscal Responsibility (TFR), the most effective way to provide tangible property tax relief to taxpayers burdened by the state's ever-increasing taxes is the compression of the school district M&O (Maintenance & Operations) portion of the property tax. The M&O comprises approximately 45% of all property taxes collected by Texas local government and is the largest portion that funds independent school districts across the state.
TFR Executive Director Jeramy Kitchen said this legislative session presents lawmakers with a historic opportunity to not only provide relief to taxpayers but also carve a path to the elimination of "immoral" property taxes using the existing budget surplus. The organization takes the stand that with some key policy changes, the path to elimination "could be much shorter if lawmakers choose to get serious about their own spending habits and those of local governments."
After the Texas Senate passed an $11.3 billion package to lower property taxes two months ago, Bill Peacock, former vice president of research at TPPF, explained to the Houston Daily what the package entailed.
"Proponents claim the package totals $16.5 billion, but that double counts $5.3 billion from as far back as 2019," Peacock told the Houston Daily in March. "Another challenge with the Senate plan is that it only puts about $5 billion into lowering tax rates. Much of the plan, such as the increase in the homestead exemption, will actually raise rates. While providing some temporary relief, that actually takes Texas farther away from completely eliminating the school M&O property tax."
Previously, the largest property tax cut in Texas history was $14.2 billion in 2009, according to Quintero and the TPPF website. If Abbott's goal is to be achieved, the tax cut benchmark should be at least $20 billion when adjusted for inflation from 2009 dollars, which is based on figures from the U.S. Bureau of Labor Statistics.