Governor Abbott wants to end property taxes
AUSTIN, Texas — After months of delay, a plan to cut property taxes is on the fast track. On Wednesday, the Texas Senate passed a key part of an $18 billion package that will help homeowners and businesses alike.
While Democrats joined Republicans in passing the bills, they raised concerns about a lack of new money for schools. One even criticized House leadership for removing a Senate-backed amendment to give teachers a bonus. Republicans say that will be taken up in the next special session.
The full property tax relief package is expected to be voted on and sent to Gov. Greg Abbott on Thursday. The governor says he’ll sign it, but it was part of the sticking point to getting the deal done. Doing it his way, he says, could eventually eliminate estate taxes altogether.
“What we want to achieve in Texas is to eliminate your property taxes. Make them go away,” Abbott said in June.
Property taxes are imposed at the local level by government agencies and school districts. The majority of the funds are paid to cover the school’s maintenance and operation (M&O) costs. The other portion goes toward the interest and sinking tax rate, which provides money to pay down debt that funds local utilities.
The state can buy the costs of mergers and acquisitions through what is called “lobbying.” The governor wants to compress this rate to zero. If that happens, homeowners’ property tax bills would be reduced by about 75%, according to TTARA. The governor said in June that revenue could be replaced with franchise and sales taxes. He says more people will spend money, thus generating more sales tax revenue, if they don’t have a large property tax bill.
He has the support of some Republicans, such as Midlothian Rep. Brian Harrison.
“This system of never-ending property taxes…I think it’s immoral. It conflicts with private property rights. “No one can truly own their home,” Rep. Harrison said. “If you have paid for your house, and if you are responsible, you can call yourself a homeowner. But you are really just a tenant. The government is your landlord. This system must be abolished.”
Rep. Harrison has introduced legislation to eliminate property taxes on mergers and acquisitions (M&O) and I&S taxes within five years. He wants to create a commission to help local governments determine how best to replace that lost sales tax revenue, either by increasing it or adding a tax on things that are currently exempt (like groceries and medical services).
“It’s not entirely clear that the sales tax will be increased by that much,” Rep. Harrison said.
Harrison says the Texas economy could get a boost by eliminating the property tax as well.
“We will have companies of all types moving to Texas,” he said. “It’s just an absolute explosion of job opportunities for people. So, yeah, they’ll have tax savings and more job opportunities. Costs will go down, because you think about the costs that companies have to pass on to their customers because of the enormous tax burden they have today.”
But other Republicans are not on the same page. Lieutenant Governor Dan Patrick, who leads the Senate, believes eliminating all property taxes is not realistic, although he would like to reduce them as much as possible.
“Eliminating all property taxes would be next to impossible,” he said on “Capital Tonight” on Monday. “Now, eliminating all school property taxes remains a daunting task. It would take approximately 30% or more of our total budget to do so.
Democrats worry that the plan could destroy the state’s public education system.
“I’d rather hear them talk about what they’re going to do to improve schools before they start talking about how we’re going to repeal the way we pay for schools,” said Rep. John Bryant, D-Dallas. .
“It’s unrealistic. It’s not sustainable. It makes our schools once again hostage to what the state decides to do rather than their local communities,” added Rep. Donna Howard, D-Austin.
In his plan, Rep. Harrison says the money needed to pay for schools would come only from the new tax mechanism.
“If you think about the government spending money, in order to spend money, it has to take it and do it through taxes,” he said. “All I’m simply saying is let’s not do it through this totally unfair and arbitrary method of never-ending property taxes.”
The bills approved by the House and Senate would lower the school district tax rate through lobbying and raise the homestead exemption to $100,000.
“The benefits of lobbying will only be for the next two years,” said Mark Jones, a political science professor at Rice University. “The homestead exemption increase, by being limited by the Constitution, is effectively in perpetuity. So homeowners can take to the bank that their homestead exemption will be $100,000 from now on. That’s $60,000 more than the current $40,000.” Moreover, over the next two years, they will pay less property taxes overall because of the squeeze, roughly 11 cents for every $100 of assessed value.
In order for this homestead exemption to be included in the Constitution, voters will need to approve it on the November ballot this year.
Eliminating estate taxes on mergers and acquisitions is only realistic if you create a new tax or expand existing ones, says Josh Sanderson, deputy executive director of the Equity Center.
“The revenue simply does not exist within our current tax structure in Texas,” Sanderson said. “If you look at the cost of eliminating estate taxes on mergers and acquisitions in Texas, that’s not a fixed number. It changes every year. As the state grows, which we celebrate, we get more kids. That cost is expanding. Right now, the amount is “A little over $30 billion a year. Next year there will be more, and so forth. So the revenues needed to pay for this cancellation will have to increase. We will have to find additional revenues.”
Although the governor will soon fulfill his campaign promise to return half of the state’s $33 billion budget surplus to taxpayers in the form of property tax breaks, the bills he will sign will not eliminate property taxes completely.
“This $33 billion of money has been found,” Jones said. “So it has given Republicans the ability, in some ways, to experiment and at least deliver a property tax reduction in the short term, in terms of rhetoric and symbolism, to benefit businesses and homeowners, even if without a decision. A similar surplus over the next biennium, and it is These benefits will likely disappear, and people’s tax bills will likely rise.
For now, the dream of eliminating the estate tax will remain a dream.
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