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Raising homestead exemption is wrong way for Texas to reform property taxes


Contact: Noah Betz; 281-928-2089

This commentary was originally published in The Austin Business Journal.

DALLAS, TX, April 3, 2023 — Like our Texas Longhorn, the homestead exemption tax seems to live and multiply well beyond its years. Unlike our prized bovine, however, there is nothing positive about its increase. Our legislature in Austin has announced plans to bump the exemption from $40,000 to $70,000. Should this happen — and it’s not too late to get smart about alternatives — Texans of all financial backgrounds will suffer.

The vaunted homestead exemption tax is, to be frank, a political stunt. Texans have been sold on its worth— a $30,000 increase in the residential homestead exemption from a home’s total value for school taxes. This is fool’s gold, and like previous increases to homestead exemptions, savings will be short-lived thanks to rising appraisal values and tax rates.

Increasing the homestead exemption does nothing to stop the spending that drives the ongoing increases in property taxes just like it does nothing to stop local governments from increasing property taxes. Instead, what results is a bifurcated property tax system in which renters (nearly the largest — and growing — segment of our population) and businesses receive no benefit. The end result, often felt years down the road, are economic inefficiencies that play out in all sorts of perverse ways.

If Austin wants to get serious about tax relief, it cannot continue to increase the homestead exemption. Three (1997, 2015, 2021) out of the last five tax relief efforts have been focused almost solely on this solution, the results have always been bad. Why not try something new for a change? Stop treating the symptoms of high taxes. It’s time we fix the problem.

First, and here is a softball for my former colleagues: try limiting state spending growth to no more than 5% biennium. Within a decade we will have enough money to eliminate the maintenance and operations (M&O) portion of the school property tax. It also makes good sense to simply freeze school M&O property taxes so districts cannot interfere with buydowns.

Second, let’s use 90% of current and future Texas’ budget surpluses for the property tax buydown. Again, fiscal discipline at the state level should provide more than enough funds to eliminate the M&O school property tax in as little as eight years.

Third, it’s no secret that cities and counties constantly undermine property tax relief by rapidly filling in the gap created by reduction in school property taxes. They should be required to ask voters for permission to exceed the no-new-revenue tax rate.

Finally, Texans should push to enshrine property tax relief in our state Constitution. Customarily, property tax relief can be accomplished by the Texas Legislature passing a new law. But to ensure a future legislature does not backtrack on its promises, eliminating the school M&O tax must be made permanent through the passage of an amendment to the Texas Constitution.

The fundamental role of government is always to defend our God-given liberties. The Texas government, at all levels, must stay focused on this simple responsibility and work toward a prosperous, virtuous and free society, which always finds a way to reduce the need for more bureaucratic oversight.

Texans are tired of paying rent to Austin and having the values of their businesses suppressed and destroyed. It’s time we awaken to the possibilities, and the unimaginable prosperity, for all Texans. It’s past time we eliminated the school property tax burden on business owners, property owners, renters and all other Texans.