Texas Cuts $6 Billion in Property Tax—How Will They Spend It?

Texas lawmakers plan to spend at least $6 billion of state funds on property tax cuts, though they disagree on who should benefit most from the proposed relief: homeowners or businesses.

Why It Matters

While Texas does not levy a personal income tax and has the country's fifth-lowest tax burden per capita, property owners in the Lone Star State pay some of the highest property taxes in the union to local governments.

Governor Greg Abbott and the state's Republican leadership have long tried to lower property taxes and offer relief to residents, but homeowners have complained of continuous hikes in recent years.

What To Know

Texas officially does not have a state property tax, but local governments set tax rates and collect taxes to provide public services, including schools, roads, police, and firefighters.

According to SmartAsset, property taxes in Texas are the seventh-highest in the nation, at an average rate of 1.63 percent. The national average, by comparison, is 0.90 percent. That means the typical Texas homeowner pays an average of $3,872 yearly in property taxes.

During his State of the State address in Austin last month, Abbott announced property tax relief as an emergency item for the state's 89th legislative session, calling for using at least $10 billion of Texas's budget surplus for property tax relief. He also suggested requiring two-thirds voter approval for all tax increases, stripping local authorities of some power, and increasing the business personal property tax exemption to $100,000.

Texas lawmakers in both chambers have now agreed to allocate $6 billion in state funds to lower property taxes for property owners, but they cannot agree on whether they want homeowners or businesses to benefit most from the relief.

Both chambers agree on sending $3 billion to school districts so that they can lower their tax rates, a tax-cutting method known as "compression," which will directly lower property taxes for property owners.

A bill (HB 8) sponsored by state Representative Morgan Meyer, a Republican who chairs the Texas House's tax-writing committee, would use an additional $2.8 billion for compression, benefiting homeowners and businesses.

Another bill from Meyer (HB 9) would exempt up to $250,000 of businesses' inventory from taxation by any taxing entity, including school districts, cities and counties; currently, businesses' inventory isn't taxed below $2,500 in value. If passed, Texas would send $700 million to school districts to cover the lost revenues.

On the other hand, Senate lawmakers would prefer homeowners to benefit the most from the tax relief. A bill (SB 4) introduced by state Senator Paul Bettencourt, a Houston Republican, and championed by Lieutenant Governor Dan Patrick, who leads the Senate, would increase the homestead exemption to $140,000 from $100,000, at an estimated cost of $3 billion.

The Senate would allocate only $500 million in cuts to businesses, much less than House lawmakers suggest.

Newsweek reached out to Meyer's and Bettencourt's offices via email for comment.

What People Are Saying

Jennifer Rabb, head of the Texas Taxpayers and Research Association, told House lawmakers in February: "Property tax reduction, in the long run, we believe should focus on controlling tax rates. That is the most effective way to control property taxes."

Representative Morgan Meyer said last week: "We must put money back in the hands of Texans."

Texas Lieutenant Governor Dan Patrick said in February: "I have made increasing the homestead exemption my mission because it is the best way to deliver meaningful property tax reductions for homeowners."

House Speaker Dustin Burrows, who backs Senator Paul Bettencourt's bill, said earlier this month: "Raising the personal property tax exemption...would be a monumental win for Texas businesses, freeing up funds for business owners to reinvest in the growth of their companies on top of the potential savings provided by buying down property tax rates for all property owners statewide."

Texas Governor Greg Abbott said last month: "Texans are facing an affordability crisis. That's especially true as it concerns the affordability of owning a home or renting a home. And one reason for that crisis is because of skyrocketing property taxes."

What Happens Next

Previous property tax cuts signed off by Abbott—including the largest property tax reduction in U.S. history in 2023, SB 2 at $22.7 billion—were criticized for stripping school districts and local governments of crucial funding supporting public services.

This type of criticism is likely to resurface, and experts already question the sustainability of such cuts.

Speaking to MyParisTexas.com, Shannon Halbrook, a fiscal policy expert at the left-leaning nonprofit Every Texan, said, "there's going to be an economic downturn, there always is. And then we're going to be stuck holding the bag on these tax cuts. More tax cuts are, I think, irresponsible in the long term."

Are you a Texas homeowner or business owner? Who do you think should benefit the most from planned property tax cuts? Tell us by contacting g.carbonaro@newsweek.com