Gov. Greg Abbott signed an $18 billion tax cut for Texas property owners, though the proposal needs to clear one more hurdle before it goes into effect.
Voters will have the chance to accept or reject this cut at the ballot box this November.
At a time when Texas has some of the highest property taxes in the country, this initiative was a cornerstone of Abbott’s most recent reelection campaign — and that of most state lawmakers.
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Karen Brooks Harper, who covers the state budget for the Texas Tribune, said the law includes four main components.
“There’s an expansion of the homestead exemption from the $40,000 to $100,000 — so up to $100,000 off the value of your own occupied home. There’s a compression, or lowering, of the school tax rate by 10.7 cents per $100 property valuation,” she said. “Then there’s a new temporary 20% appraisal cap on yearly value increases for non-homestead properties under $5 million. And then finally, there are some adjustments to the franchise tax that will let some businesses save some money and time.”
Brooks Harper said there’s another provision in the law that converts three members of any of the appraisal district board of directors into elected positions. Lawmakers believe this will give more accountability to the public when it comes to raising those appraisals each year, she said.
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John Diamond, a professor at the Baker Institute for Public Policy at Rice University, said the average homeowner will save an estimated $1,100 or $1,200 on property taxes for the home they live in under this law.
A little extra savings — around $100 or $150 — was also carved out for Texans on fixed incomes.
Brooks Harper said lawmakers have promised to replace the money schools will lose from the lowered property taxes with state funds.
“The big question is are our lawmakers going to increase funding as they’re promised to do? Are they going to be able to continue paying for these cuts without cuts to school districts in coming years if there’s another recession, as we saw a few years back? And is the teacher pay raise going to become part of all this?” she said.
“All of that is up in the air. You can’t answer the question about the future right now. There’s no plan beyond this cycle on paying for these property tax cuts. But we have the more immediate issue of the school funding bill, the extra $4 billion or so… and that’s all not going to be decided until a special session later this year.”
Diamond said the business tax cuts, which were added near the end of the legislative negotiations, helped smooth things over between lawmakers in the House and the Senate.
“The two provisions mainly affect small businesses, the franchise tax moving the threshold from about a million to almost $2 million,” he said. “(Also) if you don’t have to pay, then you don’t have to fill out the forms anymore. That definitely benefits small businesses. And then this circuit breaker pilot program, which is really nothing more than an appraisal cap at 20% for firms under $5 million.”
However, Brooks Harper said that 20% appraisal cap — which prevents the value of a property from being appraised at more than a 20% increase — likely won’t impact many properties since many won’t be valued at such a high increase in the next three years.
If voters approve this law in November — which both Diamond and Brooks Harper agree is very likely — the savings will go into effect for the 2023 tax bill.
“When the tax bills come out, there will be a statement on there that says, ‘here’s what your tax bill would have been, because of the acts of the 88th Legislature, here’s what it will be now – here’s how much you’re saving,’” she said. “So that takes effect immediately if the voters say ‘yes’ in November – which, I mean, they tend to approve property tax cuts overwhelmingly, at least they did in the last one.
But if they don’t, then statutorily some of this could go into place. But the problem would then be the funding would be completely derailed if the voters say ‘no.’”
Diamond said the main group this bill underserves is renters.
“Everybody gets some benefit. But if you compare it to some of the iterations in the process, I think the losers would be renters,” he said. “They only benefit from that 10.7% compression. And even there, that amount is going to be split between landlords and renters depending on elasticities of demand and supply in the housing market.
So definitely the smallest gainers and a group that could have been better off with a different distribution of revenues in the package is people that rent.”