AUSTIN, Texas — In this edition of Texas This Week, Gov. Greg Abbott says he has a plan to put the state on a path to eliminating property taxes. The plan he's touting comes from the Texas Public Policy Foundation (TPPF). James Quintero, policy director for the TPPF's "Government for the People" initiative – the leading expert on the plan – joined KVUE's Ashley Goudeau to explain what it includes.
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The FBI raided Paul's offices in Downtown Austin in 2019. Whistleblowers from the AG's office accuse Paxton of helping Paul during the investigation, saying Paxton benefited by having a home remodeled and by Paul employing Paxton's alleged mistress. While Paxton remains under federal investigation in the case, the 23-page indictment of Paul makes no mention of Paxton.
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James Quintero discusses TPPF's property tax plan
James Quintero: "We've been talking about tax elimination for almost as long as I've been here. And it finally seems that that message is getting through to Texas lawmakers. Both the House and the Senate are really considering some robust plans to move us in a good direction that will deliver not only immediate tax relief, but permanent tax relief. And they get their through tax rate compression."
Ashley Goudeau: So, tax rate compression, for folks who are not familiar with this – they get their tax bill, they just pay their tax bill. What is tax rate compression?
Quintero: "The best way to think about tax rate compression is that it's equivalent to tax rate cuts. So when the Legislature moves forward with the initiative that it's planning, what it will do is use surplus tax dollars to buy down the school district tax, M&O [maintenance and operations] tax. And it will do so in a permanent way. The plan that's currently being bandied about right now will actually reduce the maximum compressed rate, which, again, everybody pays – homeowners, renters, businesses. Everybody pays this property tax rate, and it will reduce it from about $0.91 per $100 of value to about $0.65 per $100 of value. That's about a 30% decrease in the tax rate. And so long as the Legislature maintains its commitment to taxpayers, that will be a 30% tax rate reduction in perpetuity."
Goudeau: And I think people at home go, "OK, well, wait, you're talking about M&O, the maintenance and operations rate for schools." So what does that pay for for our schools?
Quintero: "Great question. So the M&O rate actually pays for day-to-day expenses. Now, one reason why the Legislature is primed to move in this direction is that there is an interest in beginning to shift some of this burden to the state level. And again, we're going to try and do so using surplus tax dollars. So this is not going to affect existing programs and services delivered by the state, but rather put to use those surplus tax dollars in a responsible way. And eventually, what our goal is, is to shift the entire M&O burden to the State so that we can not only deliver immediate and long lasting tax relief, but we can get rid of Robin Hood. And we, ultimately, I think, move us toward a longer term goal, which is the total elimination of property taxes in Texas."
Goudeau: When we talk about shifting that burden to the State, I think that's easy to say and want to do during times where we have a very large budget surplus. What happens when we don't have a surplus and, God forbid, we have a deficit?
Quintero: "Great question. So the Legislature right now is on the verge of appropriating $17.6 billion toward tax relief. That's a good chunk of money. But we also have money sitting off to the side. I want the audience to know that we have about $10 billion in unencumbered general revenue sitting off to the side just in case. And in addition to that, $10 billion, we also have about a $22 billion surplus, monies expected in the Economic Stabilization Fund by fiscal year 2025. So if the economy hits a wall and things really go south, we have ample resources with which to not only address our future budget needs but also maintain tax compression efforts moving forward."
Goudeau: We're starting to hear Gov. Greg Abbott use some of the TPPF language. He endorsed the plan, really, on Friday and then talked more about and has tweeted more about eliminating a tax, eliminating a property tax – alluding to that M&O tax rate. The lieutenant governor has said that would be a very expensive thing to do. He says it would cost somewhere about $55 billion. Do you take issue with his numbers?
Quintero: "No. The lieutenant governor is right that it's a big number that we're seeking to get to zero. But here's the good thing: we're not trying to do this in a single session, but really, we're trying to take a bite out of the elephant over time. And given the state of the Texas economy, we are very well positioned to be able to incrementally buy down the school district, M&O property tax rate over time. And in fact, our economists suggest it is easily achievable in a 10-year timeframe. And if and when we were to get to that point, that would be an absolute boon to the Texas economy."
Goudeau: When we talk about the long-term TPPF plan of eliminating property taxes, how then will you pay for schools?
Quintero: "Good question. So if and when we were to reach a point where total elimination is on the table, then we've got plenty of research to suggest that a modest tax rate and tax base adjustments could be made so as to make a revenue neutral swap. That means we're taking in the same amount of tax dollars to pay for government programs and services. We're only changing how they're collected and really putting more of an emphasis on the sales tax. And I think that's a fairer tax. When you look at not only what economic disincentives come with sales tax versus the property tax, but it's also more broad based. And I think it will it will lead to better tax policy."
It's worth noting, Quintero is talking about expanding the tax base or charging sales tax on more things in a time when the Legislature has passed bills to make more things in Texas tax-free. And while he says the tax rate can stay virtually the same, Lt. Gov. Dan Patrick says it would have to almost double in order for the state to bring in enough money to fully fund schools.
Patrick held a news conference on Tuesday to talk about why he believes eliminating all property taxes just isn't realistic.
"There's been a lot of new direction, new direction of, 'Well, we're going to end all property taxes.' And that's a fantasy," Patrick said.
Patrick went on to say, "One of the facets of that plan is that all, 90% of all surplus in the future would go just to property – we all, look, we all want to end property taxes, but you can't fund the government off just taxes, sales taxes. You can't do it because when the economy is down, what happens? You don't have the sales taxes to do what you just did the last session. Let me explain that to you. I'm not sure everybody gets this – this $17.6 billion plan, that means when we come back next session, we have to do it again. So what if we don't have $17.6 billion next time? What if the economy collapses? What if there's a recession? Right now, our sales taxes are down now, Tony, about a 4% increase. They're down from the double digits increases. That's why we kept some reserve back. But so when you do compression, that's why I say it's not permanent."