Taxation, Texas

"A house built for giants, but inhabited by midgets." - St. Rep. Bob Eckhardt

The people promoting Texas as a location for business constantly push the idea that the state does not have an income tax. While that has some appeal, newcomers learn that there are property taxes that are almost punitive, and that force homeowners to carry the tax burden for corporations. Not only are corporations given huge property tax breaks by municipalities when they relocate to Texas, they are also being provided millions of dollars in tax money from the state’s Texas Enterprise Fund (TEF) to bring their companies to Texas. And homeowners are generally subsidizing this with outsized property taxes and valuations. 

No one in the state legislature, or running for a statewide office, is ever going to promote a state income tax to offset property tax increases. But the high taxes on homes are a direct consequence of a legislature that historically refuses to accept constitutional responsibility for funding education. Every two years, lawmakers fail to spend on public education in the equitable manner dictated by the constitution, and the state ends up being sued. In one form or another, Texas has been fighting lawsuits over education funding since the initial case in 1968, Rodriquez v Board of Education.

And the state always loses.

The court will then mandate a new constitutional plan and the legislature will return to session and will pass a new law to pay for schools and it will be implemented and will be found wanting and another lawsuit will be filed. This is not frivolous litigation since the court tends to find for the local school districts that are demanding fairness. The students in poor communities deserve an education that is equal to the quality in upscale neighborhoods, but when funding is based upon the valuation of the property in the school district there will continue to be dramatic inequities. 

Lawmakers abdicate doing the job they were elected to accomplish by cutting the education budgets and forcing the financial pressure down to the local level. Districts are given flexibility on raising tax rates by proposing increases and then holding Tax Ratification Elections. In any case, the money the legislature is supposed to send to the local district, but never adequately provides, has to be found and, consequently, either tax rates go up on property or the values of those properties are found to increase. Both raise money for the local school board that the legislature failed to provide as required by law.

"A house built for giants, but inhabited by midgets." - St. Rep. Bob Eckhardt
“A house built for giants, but inhabited by midgets.” – St. Rep. Bob Eckhardt

I know this is boring as hell, but hang with me here because it’s important, and, I think it is an issue that is at the nexus of the future of this state and any political party or leader who wants to offer better opportunity for Texans. Property taxes and increased down payments are making it prohibitive for young families to purchase a home. Tax escrow money calculated on high property taxation rates and then added to a 20 percent down will keep a lot of couples from being able to get a mortgage.

What are other manifestations of state leadership’s failure to properly fund Texas schools? Almost every year voters in various school districts are asked to approve bonds, which they will then retire with some form of payment, for school buildings and educational facilities. Their high property tax rates apparently do not cover the cost of construction and neither does the money provided by the state. Politicians continue to dodge blame for raising taxes by approving bond measures that dump the job onto the backs of the taxpayers who elected them to office. The gas tax in Texas, as an example, has not been raised since 1992, which means we end up with toll roads instead of taxpayer-funded highways that we drive for free. Officeholders are farming out the responsibility under the guise of a public-private partnership. 

By constitution, Texas is a pay-as-you-go state. We are not allowed to acquire debt like the federal government. But lawmakers have been avoiding that requirement by using bonded indebtedness to circumvent the law. About $40 billion dollars in bonded indebtedness has currently been issued for everything from transportation and water projects to construction of public housing and state colleges and universities. It becomes an irresponsible shell game so politicians can campaign by insisting they’ve not raised anyone’s taxes, but the debt has to be retired somehow and it is the taxpayers’ obligation. 

Meanwhile, the TEF gives away hundreds of millions in taxpayer dollars to corporations moving to Texas and when they arrive local municipalities are giving them exemptions on property taxes, which keep valuable corporate land off of tax rolls for significant periods of time. Programs like enterprise zones, manufacturing exemptions, and value limitation and tax credits under the Texas Economic Development Act take billions of dollars out of state coffers and place the obligation for making up that lost revenue on the shoulders of homeowners.

According to the Texas Taxpayers and Research Association, Texas property taxes have more than tripled, increasing 3.4 times since 1990. Although the state does not have a personal or corporate income tax, an annual income tax assessment of around $800 per individual would raise more than $20 billion dollars and could easily lift some of the weight carried by homeowners since not everyone earning an income in the state owns and is paying property taxes. A corporate income tax would generate even more revenue, considerably increasing funds to alleviate homeowner burdens. Texas currently only has a one percent margins tax on corporations. 

So here’s a suggestion for someone who wants to be a leader: talk about the arcane issue of tax reform. Be a voice for creating more balance in the source of funding that pays for state government. It will provide enough money to properly and equitably fund state schools and, by reducing escrow demands on new home down payments, will spur home construction as more new families moving to the state are able to purchase homes.

Anybody who takes on this job has courage and gets my vote. And probably millions of others, too.






  1. There are many problems with this article. In Texas property taxes are local taxes not state taxes. In fact the legislature has capped the tax rate that local school districts can charge trying to create more equity in the system. The state does not use property taxes to fund schools and the problem with school funding has to do with the lack of revenue provided by the state.

    It while it is true that Texas has higher than average property tax rates, it is also true that we have much lower cost of living which includes lower home prices. If you look at the median amount in property taxes paid per single family residence we actually pay less in property taxes than states like California, New Jersey, Wisconsin, New York, Illinois and many others many that have an additional income tax on top of property taxes. The median family paid around $2,200 in property taxes in 2012 in Texas. This not only includes school taxes, but it includes county and city governments, utility districts, hospital districts and many other local taxing jurisdictions. Almost all of these local jurisdictions offer a homestead exemption that is not offered to commercial property owners saving home owners an additional 20+% on their property taxes each year.

    I agree that it is wrong that the legislature has continued to kick things like road improvements, water security and their portion of the education funding down the road, but this has nothing to do with the local property tax system and it is disingenuous to portray it that way. These things are funded by the state and the state does not collect property taxes.

    The portion about a home being unaffordable for a young family is also factually inaccurate. First off the short fall in these local funds would have to be recouped by local taxing authorities and paid for by these home owners, but worse that that you are saying that new home buyers must come up with a 20% down payment. While it might be a financially wise decision to make a larger down payment, first time homebuyers can get an FHA loan secured with as less than a 5% down payment. And all refusing to escrow taxes into the mortgage payments for these homes will do is create a false sense of security that these young families can afford more home than they can afford when the local tax bill comes due.

    This piece comes off like it was written by a real estate agent looking to get property taxes out of escrow so he can sell more expensive houses or by a legislature that is looking to take local control to tax away from county, ISD and city jurisdictions and give that power to the Republicans in Austin. If you don’t like what they are doing to schools now imagine what they can do when they control all the purse strings.

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