Dueling property tax cut packages would reduce Texans’ tax bills by more than $16 billion

There’s broad, bipartisan support in the Texas Legislature for using the state’s record surplus to cut taxes, but the Senate and House are at odds on how to accomplish that goal.

By Andrew Schneider, Houston Public MediaMarch 29, 2023 10:00 am, ,

From Houston Public Media:

How much of a difference did last year’s property tax referendum raising the homestead exemption to $40,000 make to your bottom line? Email Andrew Schneider at andrews@houstonpublicmedia.org or contact him on Twitter @aschneider_hpm.

Governor Greg Abbott identified lowering property taxes as his number one priority when naming emergency items in his state of the state address. The idea enjoys broad, bipartisan support in the Legislature, but the two houses are not on the same page on what form it should take.

Last week, the Texas Senate passed a trio of bills aimed at lowering property taxes by a total of $16.5 billion, spending a significant portion of the state’s record $32.7 billion surplus.

“We’ve never had $16.5 billion to throw at property tax relief,” said State Senator Paul Bettencourt, R-Houston, who led the effort, “and I believe it’s going to be well received by the citizens, the taxpayers of the great state of Texas.”

The cornerstone of the effort was Bettencourt’s Senate Bill 3, which would dramatically increase the homestead exemption. “An exemption is the most powerful tool a tax writer has,” Bettencourt said.

Homeowners would only be taxed beyond the first $70,000 of their home’s value. That would come just one year after voters passed a constitutional amendment raising the homestead exemption to $40,000.

“And it’s going to even be higher for over-65 homeowners and disabled homeowners,” Bettencourt said. For seniors and disabled homeowners, SB 3 would raise the homestead exemption to $100,000.

Bettencourt’s second bill, SB 4, would reduce the number of school districts affected by recapture, a formula that requires wealthier school districts to help fund less-affluent ones. That could be of particular help to Houston ISD, which has generally been treated as a wealthier school district for purposes of recapture, despite widely varying incomes among residents.

State Senator Tan Parker, R-Flower Mound, took the lead on SB 5, which aims to reduce property taxes aimed at businesses. SB 5 would raise the business personal property tax exemption from $2,500 to $25,000. It would also reduce the inventory tax bill by 20%. The combined effect would be a tax cut to businesses of $1.5 billion.

All three property tax relief bills passed the Senate by 31 votes to zero.

“Folks are tired of the property taxes, issues dealing with appraisal boards,” said State Senator Carol Alvarado, D-Houston. “I think this is a good start. Certainly, it will bring a lot of folks into the fold in terms of giving some relief when it comes to property taxes.”

The bills are now before the House of Representatives. But the House has its own ideas on how to cut property taxes.

“One of the top issues I consistently hear from my constituents back home is their astonishment when they receive their property appraisals,” said State Representative Morgan Meyer, R-Dallas, chair of the House Ways and Means Committee, in his remarks unveiling House Bill 2.

HB 2 would reduce the maximum school district tax rate. It would also lower the appraisal cap, so appraisals would rise 5% per year at most instead of 10%. Combined with the House’s budget bill (HB 1), it would cut taxes by more than $17 billion, even more than the Senate’s package.

“HB 2 protects homeowners and businesses from the shock of rapidly rising property values, while also making it easier to plan for future investments and economic growth,” Meyer said.

Not everyone thinks so. Dale Craymer, president of the Texas Taxpayers and Research Association, is a long-time advocate of property tax reform. He supports reducing the tax rate. But he declined to take a position on HB 2 because it tightened the appraisal cap.

“Caps do not provide proportionate relief. In fact, they create substantial inequities across taxpayers depending on when title to the property was changed,” Craymer said. “There will be tax relief for some, but it will come at the expense of others, as those taxes are simply shifted onto other properties.”

Craymer has powerful allies in his view, including Lieutenant Governor Dan Patrick.

“Once you change that appraisal, then they can start raising the rates. And then in a few years, your taxes will actually be going the opposite way. We’re not going to let that happen,” said Patrick, who added he’s convinced the Senate and House will be able to work out a deal.

Property taxes aren’t the only taxes that are getting bipartisan attention this session. State Senator Royce West, D-Dallas, has filed SB 1000, a bill that would cut the state’s sales tax by half a percent, from 6.25% to 5.75%. West’s coauthors include State Senator Bob Hall, R-Edgewood.

Sales taxes tend to fall most heavily on lower and middle income families, according to Dick Lavine, senior fiscal analyst for Every Texan. “This is a well-intentioned attempt to reduce the unfairness of that part of our tax system,” Lavine said. “The problem is that the sales tax brings in more than half of all state tax revenue.”

Lavine said cutting property and sales taxes now may mean the state will have to slash spending on essential services down the line, when revenues are weaker than they are today. He said the state would be better served by investing in higher education or infrastructure, which could pay dividends in the long run.

By contrast, Lavine compared tax cuts to cotton candy: “It’s sweet, it’s enjoyable for a short period of time. And then what do you have? Nothing.”

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