The differences over how to provide property tax relief to overburdened Texans are beginning to resemble more of a philosophical debate than just a back-and-forth over who has better numbers. While all the proposals would count as the “largest property tax cut in state history,” and the average family would get noticeable reductions from the first year on, it’s the third principle – implementing a long-term solution – that may be the tie breaker.
And that could come down to one question: does Texas want to eliminate property taxes or just reduce them while keeping the basic structure intact? The overwhelming majority of Texans (79%) say property taxes are a major burden, which is why permanent solutions, like tax compression, are becoming more popular than credits or caps. What is tax compression? My colleague James Quintero explains:
Tax rate compression simply refers to an intentional act to lower the tax rate, which reduces what taxpayers owe. In recent years, tax rate compression efforts have centered on using state funds to “buydown” school district M&O tax rates to reduce property tax bills… The main benefit of targeting the M&O tax is that it keeps Texas on the pathway to elimination, with the tax rate making incremental progress to the $0.00 mark—permanently.
So what might this look like in the real world?
Imagine a home with a taxable value of $300,000 and an M&O tax rate of $0.90 per $100 of value. Without reform, this property’s tax bill (school M&O tax only) would be $2,700 annually. If the Legislature finally comes to an agreement on compression—and I believe they will—then the M&O tax rate will be reduced by $0.26 per $100 of value by the end of fiscal year 2025 (due to a 10-cent reduction under House Bill 3 and another 16 cents reduced under legislation likely in the future). That means that the tax rate applied to the $300,000 house would be $0.65 per $100 of value, yielding a tax bill of $1,950 – a savings of $750.
And that would be on an ongoing basis.
Of course, with tax rate compression it’s not just homeowners that would see this kind of relief. Businesses would also see their tax bills shrink because of the state-mandated tax rate cuts. Too, renters stand to gain as landlords could pass along tax savings in the form of lower rents.
That’s not to say that other tax relief methods don’t have their advantages. They do. But tax rate compression is the only approach that provides broad-based relief for all and propels Texas down the pathway toward a complete elimination of the property tax.
Thankfully, everyone agrees property taxes should go down. But since we’ve pulled out the engine and split it into parts, let’s put it back together in a way that delivers permanent structural relief so Texans don’t end up back in the same place five years from now.