The Case for a Flat-Dollar Exemption

Dick Lavine

In the 2015 session, legislators considered a promising proposed constitutional amendment to give cities, counties, and other local taxing units the option of lowering property taxes through a flat-dollar homestead exemption. The measure passed the Senate and the House Ways & Means Committee with significant support, but failed to come up for a full House vote before the final bill-passage deadline.

Presently, cities, counties, community colleges, and hospital districts can offer homeowners percentage homestead exemptions, meaning a percentage of the home’s value is excluded for tax purposes. The amount of the exemption differs depending on the value of the home. For example, with a 20 percent exemption a $100,000 home would get a $20,000 exemption, and a $500,000 home would get a $100,000 exemption. By contrast, a flat-dollar exemption would give all homeowners the same reduction in tax liability.

A flat-dollar exemption spreads the benefits more evenly among homeowners of all income levels by giving every homeowner the same reduction in tax liability. In contrast, a percentage exemption gives the greatest tax break to the highest value homes. According to the Comptroller’s Tax Exemptions & Incidence study, only 38 percent of the benefit of a percentage exemption goes to middle-income households earning between $34,100 and $147,400 a year. However, that income group would see 56 percent of the benefits of a flat-dollar exemption.

The flat-dollar homestead exemption option had support during the 2015 legislative session, and deserves another chance in 2017. It benefits both homeowners and local governments, offering homeowners a reduction in their property taxes and local governments increased stability and predictability of their tax revenue.

Learn more about the flat-dollar exemption.

 

CPPP's Senior Fiscal Analyst Dick Lavine presents on the flat-dollar exemption at the Texas Public Policy Foundation's Policy Orientation.

CPPP’s Senior Fiscal Analyst Dick Lavine presents on the flat-dollar exemption at the Texas Public Policy Foundation’s Policy Orientation.

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