At the recent (July 17) U.S. Senate debate between Lt. Gov. David Dewhurst and Ted Cruz the issue of runaway property taxes came up. Dewhurst and Cruz debated whether the Texas Senate had indeed cut school property taxes by one-third. This blog does not take sides in elections, but the two candidates raised some very important issues to taxpayers, namely the problem of runaway property taxes and whether so-called “tax swaps” – raising one tax to cut another – actually work.
In 2006, the Texas Legislature was under court order to reform public school finance. The Legislature cut school property tax rates by one-third but refused to cap city and county taxes and also refused to cap appraisals. This is largely because several GOP moderates (and lots of Democrats) are beholden to the high-tax, big-government liberals at the Texas Municipal League or the Texas Association of Counties.
The end result: the property tax relief was temporary, lasting for a few years. But the Legislature substantially expanded the state franchise tax on business, closing loopholes and applying the tax to previously exempt businesses (known as the margin tax). End result: what was intended (sincerely by many) as a tax cut, didn’t turn out that way.
David A. Hartman and William Lutz of the Lone Star Foundation wrote a study describing that problem, which can be read here. The facts in this report are a perfect example of why we need more taxpayer protections.
The study combines the effect of appraisal creep and local tax hikes by looking at the bill paid by the average business and residential taxpayer. In Houston, the total tax bill went up 13 percent in the period from 2005-09 and only went down 1.2 percent during the two years immediately following the tax swap (2005-07). Even the school portion of the bill only went down 3.6 percent over the four year period. In Austin, the statistics are even more alarming, with the total tax bill going up 14 percent during the four-year period and even the school tax going up 4 percent.
The 2006 tax effort was a well-intentioned effort to solve the state’s school finance problems and provide some deserved property tax relief. But the execution was flawed. The only real way to stop runaway property tax growth is to provide more protections to local taxpayers. That usually involves requiring a vote of the public before increasing taxes more than inflation.
The Legislature will likely have to address school finance soon, due to recently-filed litigation. It’s important to remember to keep taxpayers in mind and provide taxpayer protections to ensure that hard-working Texas property owners get the benefits from any tax relief lawmakers pass.