While Texas residents can openly brag about no state income tax, homeowners here pay pretty steep property taxes. Living in the Friendly State offers a lower than average cost of living, but paying for property taxes has become increasingly burdensome for some homeowners. That’s because one of the side effects of having some of the fastest-growing cities in the U.S. is increasing property values. Recently, the state’s top politicians have proposed a solution to run-away property taxes in Texas.
On April 10, Gov. Greg Abbott, Lt. Gov. Dan Patrick and Speaker of the House Dennis Bonnen outlined their plan to increase the Texas sales tax rate from 6.25 percent of the purchase price to 7.25 percent. To put that into perspective, it would mean that Texas consumers will start paying an additional penny to the state for every $1 spent on most goods and services.
To further support protecting Texas homeowners from being overrun with out-of-control property tax growth, two other bills have been proposed to keep homeowners from being overburdened with property taxes. Senate Bill 2 and House Bill 2 propose limiting how much local governments like cities and counties can grow their budgets each year. Texas Realtors came from around the state to voice their support for the bills at the State Capitol last month.
According to the plan, an additional penny of sales tax per dollar could replace $5 billion in property taxes for residential and commercial properties. Furthermore, the sales tax increase could eliminate what’s known as the Robin Hood effect of the current school finance system. With the Robin Hood effect, school districts are forced to return revenue to the state.
“Today we are introducing a sales tax proposal to buy down property tax rates for all Texas homeowners and businesses, once Senate Bill 2 or House Bill 2 is agreed to and passed by both Chambers,” according to the statement sent out on behalf of the politicians proposing the bills at the Texas State Capitol. “If the one-cent increase in the sales tax passes, it will result in billions of dollars in revenue to help drive down property taxes in the short and long term.”
Other ideas that aim to reduce the property tax burden for Texas homeowners include the House Democratic Caucus support of a bill to double the homestead exemption. This would have no benefit for business and add an ongoing cost to the state government.
The conservative-leaning Texas Public Policy Foundation applauded the combined efforts of a tax swap and a local revenue cap to control property tax growth.
“Texans demanded bold reform for real property tax cuts and it appears Gov. Abbott, Lt. Gov. Patrick, and Speaker Bonnen have crafted a proposal that could achieve this result,” TPPF CEO Kevin Roberts said. “We are pleased to hear the plan will dedicate all new sales tax revenue to property tax cuts and takes a strong step toward delivering on their promises.”
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