Lawmakers at odds over tax plans
Legislature looking to cut property taxes, but lawmakers still can’t agree on best way
Both chambers of the Texas Legislature have drawn up multibillion-dollar plans to cut property taxes, each with a different approach.
So who would benefit from the tax-saving plans, and by how much?
The $17.3 billion House proposal would use state dollars to buy down school property taxes — essentially offsetting the burden on local taxpayers — and halve an existing 10 percent cap on year-to-year appraisal increases. The new 5 percent cap would apply to businesses, too.
Senate lawmakers want to put up $16.5 billion to replace school district property tax revenue. Under their proposal, nearly a quarter of relief would come from raising the school property tax homestead exemption from $40,000 to $70,000, allowing homeowners to shave that amount off the taxable value of their primary residence.
The plan would also raise the homestead exemption for those over 65 and for disabled homeowners and extend $1.5 billion of tax relief to businesses.
Leaders in the two chambers are heralding their proposals as historic, much-needed pieces of property tax relief. But each approach — funded by a massive state budget surplus mostly fueled by sales taxes and taxes on oil and gas — would give bigger slices of the pie to different groups.
It’s become something of a tradition amid rising property values in Texas: Every April, homeowners brace for their appraisal notices and the sticker shock that comes with them.
Cushioning the blow is a state law that, for the last 25 years, has prevented the taxable value of a homestead residence from increasing more than 10 percent annually.
House Republicans want to lower the appraisal cap and extend it to all types of property, including rental homes, apartments and businesses.
Supporters of the approach say it would strengthen the state’s existing protections against sudden property value spikes, giving property owners more predictability.
The plan is opposed by a wide range of critics, from Lt. Gov. Dan Patrick and state Sen. Paul Bettencourt — conservative Republicans who are spearheading the Senate’s property tax package — to groups such as Every Texan, a progressive think tank.
Dick Lavine, senior fiscal analyst at Every Texan, said appraisal caps benefit wealthier
homeowners the most because “higher-value homes have historically tended to appreciate in value faster than other homes.” Lowering the appraisal cap any further “could exacerbate this imbalance,” Lavine said.
Shifting tax load?
Opponents of appraisal caps have long argued that they do nothing to alleviate the overall tax burden, simply shifting the load onto other parts of the tax base that don’t benefit from the caps, such as businesses and renters. Even if lawmakers expanded the cap to cover all types of property, the burden would still shift from properties with fast-increasing values to those seeing slower increases, the Texas Taxpayers and Research Association, a business-friendly tax policy think tank, wrote in a report last month.
Critics argue that the burden would also fall on new homebuyers, who are taxed on their property’s full market value — not the value, limited by years of 5 percent or 10 percent caps, used to calculate the previous owner’s bill.
This would become especially painful, critics say, because local governments could simply increase new homeowners’ tax rates to ensure they make up for the loss from the lowered cap.
Patrick warned that lowering Texas’ appraisal caps would “undermine” 2019 reforms that cap how much revenue local governments collect by forcing them to adopt lower tax rates.
“I think the intentions of the House are good, but that would be a disaster and undo everything we’ve done that has brought this property tax relief,” said Patrick, who once proposed an even stricter cap on homestead reappraisals
Homestead exemptions
The Senate’s property tax package, which passed the chamber unanimously last month, would apply to about 5.7 million homesteads, around 2 million of which belong to owners with an over-65 or disabled exemption, according to Bettencourt.
The idea centers in part around increasing the homestead exemption for school district property taxes. Last session, lawmakers hiked the exemption from $25,000 to $40,000, a change that received broad support from Democrats who lauded it as “the most progressive way” to provide “longterm tax relief.”
Because the taxable value of all homes is reduced by the same amount, Lavine said, the benefits of the current $40,000 exemption are “spread fairly evenly,” with about one quarter going to households with an income of $166,508 or higher. By contrast, households above that threshold receive about half the benefit of the 10 percent appraisal cap, he said.
Critics say that raising the homestead exemption would help only homeowners, leaving out renters who typically have lower incomes. House Republicans also contend their bill would provide more durable relief. State Rep. Morgan Meyer, a Dallas Republican who authored the House’s property tax plan, said the lower chamber is “taking a new and bold strategy.”
“No one has ever come up to me and said, ‘Morgan, man, we got to do something about our homestead exemption,’” Meyer said on NBC DFW’s “Lone Star Politics” show. “I’ve never heard that. I’ve been doing this for eight years. But what they do come and tell me is, ‘Morgan, what is going on with our appraisals?’”
Based on the statewide average for school district property tax rates — about $1.14 per $100 of taxable value in 2022 — raising the homestead exemption to $70,000 under the Senate plan would save homeowners nearly $800 a year, up from roughly $450 saved under the existing $40,000 exemption.
Savings would vary based on a school district’s tax rate. For instance, the Houston Independent School District’s tax rate is about 10 cents lower than the statewide average, so those homeowners would save about $726 a year with a $70,000 exemption. Homeowners in Katy ISD, where the rate is $1.21 per $100, would save about $913 a year.
Additions to Senate package
The Senate package also would triple to $30,000 an existing exemption for over-65 and disabled homeowners, who would be able to stack that on top of their main $70,000 exemption, trimming a total of $100,000 off their home’s taxable value. That would generate $1,062 in annual savings based on the statewide average tax rate, Bettencourt said.