The media has been inundated with proposals from Texas Legislators concerning plans to lower the tax burden on homeowners and businesses. Some $4.6 billion in tax relief is being proposed in margins, franchise, and property taxes, with property taxes accounting for the biggest tax savings.
Tax relief is not a new concept; Texans have heard it before. However, politicians who based their election campaigns on tax relief appear to be focused on keeping their promises this year.
Tax Relief is Possible
Texas has enjoyed a budget surplus since the oil and gas boom began several years ago. Meanwhile, other industries and technologies have seen their prospects soar as Texas becomes a destination for new business and industry.
In short, Texas appears to have the available funds and the Legislature intends to use them for some sort of tax relief. The recent downturn in oil prices may cause the state to revisit its long-term financial plans and temper the amount of relief it provides.
What's Being Proposed
If property tax relief is given, the most likely form is an increase the homestead exemption, tying it to a statewide average home value. As currently proposed, the exemption would be 25%. By tying the exemption to the statewide average, the exemption becomes annually indexed for inflation or other economic changes. According to the Legislature, this would cost $2.5 billion in property tax revenue.
Other proposals include exempting small businesses with revenues less than $4 million from the franchise tax and expanding the Freeport Exemption qualification period from 175 day to 365 days.
Will it Work?
On the surface, the tax relief proposals look good. What has not been explained yet is how the state will insure that taxpayers will actually benefit.
The assumption, as far as the school property tax is concerned, is that the state will reconfigure the school funding formula to compensate each school district for lost revenue. However, Texas remains embroiled in a lawsuit with public school districts over the current school funding formula; a lawsuit that does not appear to be headed to resolution in the near future.
It must be recognized that exemptions and reductions in the collection of state and local taxes have not always resulted in tax relief. Too often, tax rates have been adjusted to make up for any mandated revenue reductions. The result is a redistribution of the tax burden to those who received no preferential attention. A large segment of Texas business and industry falls into this category.
It would behoove taxpayers to keep a close watch on legislative proposals now under consideration. What's billed as "tax relief" will likely not reduce taxes for everyone.